On 20 June 2016,Parker Services received $2 400 in advance from a customer for one month's service.The journal entry to record the receipt of cash would be which of the following?
A)Debit Cash $2 400 and credit Service revenue $2 400.
B)Debit Cash $2 400 and credit Unearned service revenue $2 400.
C)Debit Unearned service revenue $2 400 and credit Service revenue $2 400.
D)Debit Unearned service revenue $2 400 and credit Cash $2 400.

Question

Quizplus · Accepted Answer

When a company receives cash in advance from a customer, it is considered unearned revenue because the service has not yet been provided. Therefore, the journal entry should be to debit Cash for the amount received and credit Unearned service revenue for the same amount. Option B correctly reflects this entry. Option A is incorrect because it would increase Service revenue which has not yet been earned. Option C is incorrect because it would result in a credit to Service revenue, which would not yet have been earned. Option D is incorrect because it would debit Unearned service revenue, which would decrease the liability, as opposed to crediting it to increase the liability.

On 20 June 2016,Parker Services Received $2 400 in Advance