On April 10, 2013, Peter Services received $4,800 in advance from a customer for one month's service, to be provided April 10, 2013 to May 10, 2013. What would be the journal entry to adjust the accounts at the end of April?
A)debit Service Revenue $1,600 and credit Unearned Revenue $1,600
B)debit Unearned Revenue $3,200 and credit Service Revenue $3,200
C)debit Unearned Revenue $4,800 and credit Service Revenue $4,800
D)debit Service Revenue $3,200 and credit Accounts Receivable $3,200

Question

Quizplus · Accepted Answer

At the end of April, Peter Services would have provided two-thirds (20 days out of 30 days) of the service for which they received $4,800 in advance. Therefore, they would have earned two-thirds of that amount, which is $3,200. To adjust the accounts, we need to debit Unearned Revenue (a liability account that represents the amount of revenue that has been collected in advance but hasn't been earned yet) and credit Service Revenue (an income account that represents the revenue earned by providing services) for $3,200. This recognizes the revenue that has been earned during April and reduces the liability for unearned revenue. Therefore, the correct journal entry is to debit Unearned Revenue $3,200 and credit Service Revenue $3,200.

On April 10, 2013, Peter Services Received $4,800 in Advance