A company performs 20 days of work on a 30-day contract before the end of the year. The total contract is valued at $6,000, with payment received in advance. The $6,000 cash receipt was initially recorded as Unearned Revenue. The required adjusting entry includes a $4,000 debit to Unearned Revenue.

Question

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Since 20 out of 30 days have been completed, the company has earned 2/3 or $4,000 of the total contract value. Therefore, $4,000 should be moved from Unearned Revenue to Revenue through a debit to Unearned Revenue and a credit to Revenue in the adjusting entry.

A Company Performs 20 Days of Work on a 30-Day