If a business has received cash in advance of services performed and credits a liability account the adjusting entry needed after the services are performed will be
A) debit Unearned Service Revenue and credit Cash.
B) debit Unearned Service Revenue and credit Service Revenue.
C) debit Unearned Service Revenue and credit Prepaid Expense.
D) debit Unearned Service Revenue and credit Accounts Receivable.

Question

Quizplus · Accepted Answer

When a business receives cash in advance of services performed, it records the amount as a liability in the Unearned Service Revenue account. When the services are performed, the liability account needs to be reduced and the revenue needs to be recognized. Therefore, the adjusting entry will be to debit Unearned Service Revenue and credit Service Revenue. Option A is incorrect because Cash was already credited when the money was received in advance. Option C is incorrect because Prepaid Expense is a different account used for expenses that have been paid in advance, not for services. Option D is incorrect because Accounts Receivable is used to record amounts owed by customers, not amounts received in advance.

If a Business Has Received Cash in Advance of Services