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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

The adjusting entry for unearned revenue pertains to which of the following types of businesses?

  1. a. Service
  2. b. Merchandising
  3. c. Manufacturing
  4. d. Service and merchandising
  5. e. All of the above

To determine

Identify which type of business relates to the adjusting entry for unearned revenue.

Explanation

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Unearned revenue: The revenue which is received in advance by the company for the services or goods to be delivered in future is referred to as unearned revenue. Since the revenue is received for the services not yet performed, the revenue is recorded as a liability until the services are performed. After the services are performed, the liability would be reduced and the revenue would be credited.

Manufacturing businesses: This is a business that buys raw materials, processes those to make finished goods, and sells those goods to customers.

Merchandising businesses: Merchandising companies which buy goods from suppliers, or manufacturers, and sell to retailers are referred to as merchandising businesses. These companies act as middlemen between manufacturing and retailing companies.

Service businesses: Service companies involve in selling services, collecting cash for the services performed, and pay off the operating expenses...

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