Answer:
The journal entries are provided in explanation.
Step-by-step explanation:
Overview:
- Deferred revenues reflect situations in which money has been received, but goods and services haven't been provided.
- Also known as deposits, and they are not recognized as revenues in the income statement.
- Are not "real revenues." They don't affect net income or loss at all.
- They report on the balance sheet as liabilities.
- The journal entry to recognize a deferred revenue is to debit or increase cash and credit or increase a deposit or another liability account.
- When services or goods are provided, the entry is to debit or decrease the deposit account and credit or increase the revenue account – the "real" one, which reports in the income statement and impacts net income or loss.
Payment for 3 months received in advance on June 8, 2017 = $4,500
Payment per month = $1,500
Payment for one year = $1,500 × 12 = $18,000 for one year.
Journal entry to create deferred revenue is as follows:
On June 8, 2017:
Debit: Cash account $4,500
Credit: Deferred income $4,500
On July 1, 2017
Debit: Deferred income $1,500
Credit: Cleaning service income $1,500