Final answer:
The appropriate journal entry for the upfront payment received by Nick Co. for future legal services is to debit Cash and credit Unearned Revenue. Over the next month, as services are provided, revenue will be recognized by reducing Unearned Revenue and increasing Revenue.
Step-by-step explanation:
The student is asking about the appropriate journal entry for a transaction involving an upfront payment received by Nick Co. for legal services on September 15. On that date, the company received $2,000 for services that will be provided over the next month.
The correct journal entry to record this transaction would be to debit the Cash account, as the company's cash balance increases, and credit Unearned Revenue, which is a liability account that reflects the obligation to perform services in the future. Here is how the journal entry would look:
- Cash (debit): $2,000
- Unearned Revenue (credit): $2,000
As services are performed over the next month, the company will recognize revenue by transferring amounts from 'Unearned Revenue' to the 'Revenue' account, reflecting the earning process.