If a business received cash in advance of services performed and credits a liability account, the adjusting entry when the services are performed will be a debit to Revenues Received in Advance account (or unearned revenue) and a credit to: Group of answer choices Cash. Service revenue. Prepaid expense. Accounts receivable.
Question
If a business received cash in advance of services performed and credits a liability account, the adjusting entry when the services are performed will be a debit to Revenues Received in Advance account (or unearned revenue) and a credit to: Group of answer choices
Cash.
Service revenue.
Prepaid expense.
Accounts receivable.
Solution
If a business received cash in advance of services performed and credits a liability account, the adjusting entry when the services are performed will be:
-
A debit to the Revenues Received in Advance account (or unearned revenue). This reduces the liability that was recorded when the cash was initially received.
-
A credit to the Service Revenue account. This recognizes the revenue that has been earned by performing the services.
The other options are not correct:
- Cash would not be credited because no cash is received when the services are performed (the cash was received in advance).
- Prepaid expense would not be credited because this situation does not involve an expense that has been prepaid.
- Accounts receivable would not be credited because no receivable is created when the services are performed (the cash was received in advance).
Therefore, the correct answer is: Service revenue.
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