Question

At the end of the current year, $59,500 of fees have been earned but have not been billed to clients.

a. Journalize the adjusting entry to record the accrued fees.
b. If the cash basis rather than the accrual basis had been used, would an adjusting entry have been necessary?

Answer 1

According to the accrual basis, the revenue must be recorded once it has been accrued or earned. The amount received would be recorded as unearned fees, the initial entry would be:

Dr Cash $59,500

Cr Unearned Fees $59,500

When the earnings are earned which means that the consideration from our part has been delivered, now the entry would be recorded as:

Dr Unearned Fees $59,500

Cr Revenue (Earned Fees) $59,500

And if the cash accounting basis is used then the amount would be recorded as revenue (Earned fees) on the receipt of the amount. So the entry would be:

Dr Cash $59,500

Cr Revenue $59,500

Answer 2

a) Unbilled Revenues Debit $ 59,500

Service Revenues Credit $ 59,500

b) in case the entity was working on a cash basis then no entry would have been required

Step-by-step explanation:

The accounting entry to record unbilled revenues is to debit the Unbilled Revenues and to credit the Service Revenues account. The revenues is credited because it has been earned and the debit goes to unbilled revenue since it is unbilled.

When the amount in billed, the Unbilled revenues shall be credited and accounts receivables debited.

In an entity using cash basis of accounting, no accruals are recorded and only when the cash is received is the revenue account credited.