Sylvester Company requires clients to pay in advance for legal services.One such client made a $4,000 payment on May 1, and Sylvester Company recorded this transaction in the appropriate liability account.As of May 20, the legal services that the client requested had been completed.The May 20 accounting entry will:
A)decrease assets and increase revenues
B)decrease assets and decrease liabilities
C)increase revenues and increase liabilities
D)decrease liabilities and increase revenues

Question

Quizplus · Accepted Answer

The completion of the legal services means that the revenue has been earned by Sylvester Company. Therefore, the accounting entry on May 20 will be to recognize the revenue earned and reduce the liability for the payment received in advance. Thus, the entry will decrease the liability account (since the payment has been earned) and increase revenue (since the services have been completed). The correct choice is D, decrease liabilities and increase revenues.

Sylvester Company Requires Clients to Pay in Advance for Legal