Question

A newspaper company collects cash in advance for subscriptions. On the first day of the year (1/1/23), they collected a one-year subscription, making the following journal entry: Dr. Cash 120 Cr. Unearned Revenue 120 They now need to make the financial statements for the month ended January 31,2023 . What adjusting entry should they make on 1/31/23 ?

Answer 1

The necessary adjusting entry for the newspaper company's financial statements as of January 31, 2023, involves debiting Unearned Revenue and crediting Subscription Revenue for one month of the subscription service provided.

Step-by-step explanation:

The question involves making an adjusting entry in the accounting records of a newspaper company that has received cash in advance for subscriptions. On January 1, 2023, the company recorded the receipt of a one-year subscription with a journal entry debiting Cash and crediting Unearned Revenue. Since financial statements are being prepared for the month ending January 31, 2023, an adjusting entry is required to recognize the revenue earned during the month.

The adjusting entry on 1/31/23 would be:
Dr. Unearned Revenue 10
Cr. Subscription Revenue 10

This entry reflects one month's worth of the subscription service that has been provided, moving it from a liability (Unearned Revenue) to an income account (Subscription Revenue) on the income statement.