Question

In January, the Huntington Beach Resort accepts your reservation and receives you $2,000 payment for a week of sun and fun in California during spring break. Which of the following describes the effects of this transaction on HBR's books?

-Cash and a credit to Unearned Revenue.
-Service Revenue and a credit to Cash.
-Accounts Payable and a credit to Service Revenue.
-Cash and a credit to Service Revenue.

Answer 1

Huntington Beach Resort would record the $2,000 received in advance for a future service as an increase in Cash and a credit to Unearned Revenue, recognizing it's a liability until the service is delivered.

Step-by-step explanation:

When the Huntington Beach Resort (HBR) accepts a reservation and receives a $2,000 payment for services to be provided in the future, the correct accounting entry would be to increase Cash and credit Unearned Revenue. Unearned Revenue is a liability account that reflects the company's obligation to provide services in the future. The revenue cannot be recognized until the service is actually performed. Therefore, the correct entry is -Cash and a credit to Unearned Revenue.