Question

A lawyer collected $710 of legal fees in advance. He erroneously debited Cash for $170 and credited Accounts Receivable for $170. The correcting entry is

A)
Cash
170
Accounts Receivable
540
Unearned Service Revenue
710
B)
Cash
710
Service Revenue
710
C)
Cash
540
Accounts Receivable
170
Unearned Service Revenue
710
D)
Cash
540
Accounts Receivable
540

Answer 1

The correcting entry is A) Cash170 Accounts Receivable540 Unearned Service Revenue 710.

Step-by-step explanation:

The correct answer is A) Cash170 Accounts Receivable540 Unearned Service Revenue 710.

The student has asked about the correct way to make a journal entry to fix an erroneous accounting transaction involving legal fees.

To correct the error, the lawyer needs to debit Cash for the correct amount of $540 (representing the $710 collected minus the $170 erroneously debited) and credit Accounts Receivable for the correct amount of $170 (representing the amount owed by the client).

In addition, the lawyer should credit Unearned Service Revenue for $710, as the amount collected in advance will now be recognized as revenue once the legal services are provided.