Question

On July 7, Saints Incorporated received $10,000 in cash from a customer for services to be provided on October 10. How should the transaction be recorded on July 7?

1) Debit Cash $10,000, Credit Accounts Receivable $10,000
2) Debit Cash $10,000, Credit Unearned Revenue $10,000
3) Debit Cash $10,000, Credit Service Revenue $10,000
4) Debit Cash $10,000, Credit Accounts Payable $10,000

Answer 1

The correct recording for the transaction on July 7 is to debit Cash and credit Unearned Revenue, as the services are to be provided at a future date.

Step-by-step explanation:

On July 7, when Saints Incorporated received $10,000 in cash from a customer for services to be provided on a future date (October 10), the correct way to record this transaction is to Debit Cash for $10,000 and Credit Unearned Revenue for the same amount. This is because the cash has been received but the service has not yet been provided, making it a liability for the company until the service is rendered.

The entry would look like this:

• Debit Cash $10,000
• Credit Unearned Revenue $10,000