UNI Co.received $1,000 advance from Newbie as rent for the use of a building owned by UNI.How does this transaction affect UNI's accounts if UNI recognizes a liability?
A)Cash is increased and revenue is increased.
B)Cash is increased and revenue is decreased.
C)Cash is increased and unearned revenue is increased.
D)It is not recorded.

Question

Quizplus · Accepted Answer

When UNI recognizes a liability, it means they have not earned the revenue yet. Therefore, the $1,000 cash received from Newbie will increase UNI's cash account, but the corresponding liability account, unearned revenue, will also increase by the same amount. This is because UNI has an obligation to provide the use of the building to Newbie in the future, so they have not yet earned the revenue.

UNI CoReceived $1,000 Advance from Newbie as Rent for the Use