Question

On September 1, Newman Company received $1,200 of revenue in advance from customers for work to be performed evenly over the next 12 months. The transaction was recorded in an income statement account. What is the adjusting journal entry required on December 31?

a)Debit revenue $400.
b)Credit revenue $400.
c)Credit revenue $800.
d)Debit revenue $800.

Answer 1

The adjusting journal entry required on December 31 is to credit revenue $400, as only a portion of the revenue has been earned by that date.

Step-by-step explanation:

The adjusting journal entry required on December 31 is to credit revenue $400. This is because $1,200 of revenue was received in advance for work to be performed over 12 months, and the transaction was already recorded in an income statement account. December 31 represents 4 months of the 12-month period, so the adjustment is made to recognize the portion of the revenue that has been earned.