Question

On December 1, 2016, Sebastian University received cash of $30,000 and a pledge for another $60,000 to be paid in 2017. The amounts are to establish a permanent endowment to provide scholarships for music majors. How should this event be recorded on December 31, 2016, assuming Sebastian is a public university?

Answer 1

On December 31, 2016, Sebastian University should record the cash received of $30,000 as an increase in their cash account and the pledge for $60,000 as a promise to pay or accounts receivable.

Step-by-step explanation:

On December 31, 2016, Sebastian University should record the cash received of $30,000 as an increase in their cash account. This can be recorded as a debit to the cash account and a credit to a revenue or income account such as 'Scholarship Revenue'.

The pledge for $60,000 that is to be paid in 2017 should be recorded as a promise to pay or accounts receivable. It can be recorded as a debit to the accounts receivable account and a credit to a revenue or income account such as 'Pledge Revenue'.

These entries reflect the increase in assets (cash and accounts receivable) and the corresponding revenue earned. Since Sebastian University is a public university, they would follow the guidelines set by generally accepted accounting principles (GAAP) in recording these transactions.