Question

During the last month of its fiscal year, Echo Lake Resort accepted numerous deposits from customers. By the end of the month many, but not all, of these guests had completed their stays. The entry to record this event is an example of an adjusting entry:

a) To apportion a recorded cost.
b) To apportion unearned revenue.
c) To record unrecorded expenses.
d) To record unearned revenue.

Answer 1

The entry to record deposits at Echo Lake Resort for guest stays is an adjusting entry to apportion unearned revenue, moving it from a liability to an income account as services are provided.

Step-by-step explanation:

The entry to record the acceptance of deposits from customers and the completion of stays by some of those these guests at Echo Lake Resort in the last month of its fiscal year is an example of an adjusting entry to apportion unearned revenue. When the resort accepts deposits, it records the cash received as unearned revenue because it represents payment for services that have not yet been provided. As the guests complete their stays, this revenue is then earned, and the resort must adjust its accounts to reflect the revenue that has been earned. This involves decreasing the unearned revenue account and increasing the revenue account accordingly.

An adjusting entry for unearned revenue is used in accrual-based accounting to ensure that income is recognized in the period when the service is actually provided. It is necessary to make such adjustments before the financial statements are prepared, so that the reported revenue and liabilities are accurate.