Management Services,Inc.provides services to clients.On May 1,a client prepaid Management Services $60,000 for a six-month contract in advance.Management Services' journal entry to record this transaction will include a:
A)Debit to Unearned Management Fees for $60,000.
B)Credit to Management Fees Earned for $60,000.
C)Credit to Cash for $60,000.
D)Credit to Unearned Management Fees for $60,000.
E)Debit to Management Fees Earned for $60,000.

Question

Quizplus · Accepted Answer

The journal entry to record the prepayment of a client for services that have not yet been rendered involves a credit to a liability account called Unearned Management Fees. This account will be decreased as the services are rendered and the revenue is earned, and will eventually be credited to Management Fees Earned. Additionally, there will be a debit to Cash to reflect the receipt of the prepayment. Therefore, only choice D accurately describes the journal entry for this transaction.