A company received $5,000 for 100 one-year subscriptions on July 1.The journal entry to record this cash receipt would include a ________.The company uses a liability account for revenue received in advance.
A) credit to Accounts Payable for $5,000
B) debit to Prepaid Expenses for $5,000
C) credit to Unearned Revenue for $5,000
D) debit to Note Payable for $5,000

Question

Quizplus · Accepted Answer

When a company receives cash for a service or product in advance, it should record the amount as a liability in the Unearned Revenue account. This is because the company has not yet earned the revenue, and therefore has an obligation to provide the service or product at a later date. Option A is incorrect because Accounts Payable is used to record a company's debts to its vendors or suppliers, not its revenue receipts. Option B is incorrect because Prepaid Expenses are expenses that have been paid in advance, such as insurance premiums or rent payments, and are recorded as assets. Option D is incorrect because Note Payable is used to record a company's debts to its creditors that are documented with a promissory note.

A Company Received $5,000 for 100 One-Year Subscriptions on July