Athens Delivery Service is hired on October 31, 2018 to perform services, beginning on November 1, 2018. The delivery services will be performed for six months at a rate of $3,500 per month. Athens' fiscal year ends on December 31. What amount of service revenue should be recorded as an adjusting entry on December 31, 2018?
A) $3,500
B) 0
C) $7,000
D) $10,500

Question

Quizplus · Accepted Answer

According to accrual accounting, revenue should be recognized when it is earned, regardless of when payment is received. Since Athens Delivery Service has completed two months of service (November and December), it has earned revenue of $7,000 ($3,500 x 2) that has not yet been recognized. Therefore, the adjusting entry on December 31, 2018 should record $7,000 of service revenue.

Athens Delivery Service Is Hired on October 31, 2018 to Perform