TLR Consulting keep their accounting records using the accrual basis. During 2018, they collected $425,000 from clients. On December 31, 2017 they had accounts receivable of $61,000 and on December 31, 2018 they had accounts receivable of $46,000. Additionally, they had unearned revenues of $7,000. Using the accrual basis of accounting, what did TLR Consulting earn in service fees for 2018?
A) $403,000
B) $417,000
C) $433,000
D) $447,000

Question

Quizplus · Accepted Answer

Service revenue is recognized when services are performed, regardless of when cash is received. In this case, TLR Consulting earned $425,000 in service fees during 2018, as indicated by the amount collected from clients. However, the accrual basis of accounting also considers changes in accounts receivable and unearned revenues. The decrease in accounts receivable ($61,000 - $46,000 = $15,000) indicates that TLR Consulting earned more than they collected in cash. The increase in unearned revenues ($7,000) indicates that TLR Consulting collected cash in advance for services that will be performed in the future. Therefore, the total service revenue earned for 2018 is $425,000 + $15,000 - $7,000 = $433,000.

TLR Consulting Keep Their Accounting Records Using the Accrual Basis