On August 31, 2013, Peter Services received $3,500 in advance from a customer. Which of the following would be the journal entry to record the receipt of cash?
A)debit Unearned Revenue $3,500 and credit Cash $3,500
B)debit Cash $3,500 and credit Service Revenue $3,500
C)debit Unearned Revenue $3,500 and credit Service Revenue $3,500
D)debit Cash $3,500 and credit Unearned Revenue $3,500

Question

Quizplus · Accepted Answer

The receipt of cash in advance from a customer is recorded as a liability, as the service or product for which the customer paid has not yet been provided. Therefore, the journal entry would be to debit Cash for $3,500 and credit Unearned Revenue for $3,500. Option A is incorrect because it credits cash, which is not a liability account. Option B is incorrect because it credits Service Revenue, which is only recorded when services have been provided. Option C is incorrect because it credits both Unearned Revenue and Service Revenue, which does not reflect the fact that services have not yet been provided.

On August 31, 2013, Peter Services Received $3,500 in Advance