On March 1, a company collects revenue in advance for the next 12 months and credits a liability account. The adjusting entry at year-end on the work sheet would
A) increase a liability account
B) decrease an asset account
C) decrease a revenue account
D) decrease a liability account

Question

Quizplus · Accepted Answer

At year-end, the company would need to recognize a portion of the revenue collected in advance as earned. This means that the liability account credited at the time of collection would need to be decreased since some of the revenue is no longer considered unearned. Therefore, the adjusting entry at year-end would involve decreasing the liability account.

On March 1, a Company Collects Revenue in Advance for the Next