Question

Deferred revenues represent liabilities recorded when cash is received from customers in advance of providing a good or service. What adjusting journal entry is required at the end of a period to recognize the amount of the deferred revenues that were recognized during the period?

Option 1: Revenue Recognition Adjustment
Option 2: Deferred Revenue Adjustment
Option 3: Cash Received Adjustment
Option 4: Liabilities Adjustment

Answer 1

The adjusting journal entry required to recognize deferred revenues is the Revenue Recognition Adjustment.

Step-by-step explanation:

The adjusting journal entry required at the end of a period to recognize the amount of deferred revenues that were recognized during the period is option 1: Revenue Recognition Adjustment.

This entry is made to shift the previously recorded deferred revenue from the liability account to the revenue account and reflect the actual amount of revenue earned during the period.

For example, if a company had received $2,000 in cash from customers for a service that will be provided over a period of six months, and at the end of the first month, $300 worth of service has been delivered, the adjusting journal entry would be:

1. Debit Revenue $300
2. Credit Deferred Revenue $300