Question

Techno Technical Services is working on a six-month job for a client, starting on March 1. It will collect $18,000 from its customer when the job is finished but the revenue is earned evenly over the six months. On April 31, before adjusting entries are made, Techno's Accounts Receivable account had a debit balance of $4,000. After the April 31 monthly adjusting entry has been made, what will be the balance in Accounts Receivable?

A. Credit balance of $15,000
B. Debit balance of $10,000
C. Debit balance of $7,000
D. Debit balance of $3,000
E. None of the above

Answer 1

The balance in the Accounts Receivable account after the April 31 monthly adjusting entry will be a debit balance of $7,000. The correct answer is option C.

Step-by-step explanation:

The balance in the Accounts Receivable account after the April 31 monthly adjusting entry will be a debit balance of $7,000.

Since the revenue is earned evenly over the six-month job, each month Techno Technical Services would recognize 1/6th of the total revenue. In this case, the total revenue is $18,000, so each month Techno would recognize $3,000 ($18,000 / 6). Therefore, on April 31, the revenue recognized would be $3,000, which would be recorded as a credit to the Accounts Receivable account.

However, since the question states that the Accounts Receivable account had a debit balance of $4,000 before the adjusting entry, this means that there were already unpaid customer invoices or debits in the account. After recognizing the revenue of $3,000, the debit balance of $4,000 would still remain, resulting in a debit balance of $7,000 in the Accounts Receivable account after the April 31 monthly adjusting entry.