Question

On December 5 received $4,800 in advance for accounting services to be performed during next 12 months. As of December 31, we have earned 1/12 of the fees. Give the journal entry to account for the cash received?

Answer 1

The journal entry to account for the cash received for accounting services is a debit to Cash and a credit to Unearned Revenue.

Step-by-step explanation:

The journal entry to account for the cash received for the accounting services is as follows:

1. Debit Cash (Assets) - $4,800
2. Credit Unearned Revenue (Liabilities) - $4,800

This entry records the cash received as a debit to the Cash account, which increases the asset balance. The credit to Unearned Revenue represents a liability because the services have not yet been performed, and the revenue is considered unearned until the services are provided.

The student is asking how to account for cash received in advance for services that will be provided over the next 12 months. On December 5, when the $4,800 was received, the journal entry would be to debit Cash for $4,800 and credit Unearned Service Revenue (a liability account) for $4,800, recognizing that the service has not yet been performed.

By December 31, one month of the service has been earned, so an adjusting journal entry is needed. The adjusting entry would be to debit Unearned Service Revenue for $400 (which is 1/12 of $4,800) and credit Service Revenue for $400 to recognize the revenue earned in December.