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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Adjustment for unearned revenue

On June 1, 2016, Herbal Co. received $18,900 for the rent of land for 12 months. Journalize the adjusting entry required for unearned rent on December 31, 2016.

To determine

Unearned Revenue:

Unearned revenue is the revenue which is earned in advance, ahead of goods supplied or services performed. As per the revenue recognition principle it is not recorded in the books of accounts until earned. Hence, this is considered as a liability for the business.

Adjusting Entries

Adjusting entries indicates those entries, which are passed in the books of accounts at the end of one accounting period. These entries are passed in the books of accounts as per the revenue recognition principle, and the expenses recognition principle to adjust the revenue, and the expenses of a business in the period of their occurrence.

Rule of Debit and Credit:

Debit - Increase in all assets, expenses & dividends, and decrease in all liabilities and stockholders’ equity.

Credit - Increase in all liabilities and stockholders’ equity, and decrease in all assets & expenses.

To record: The given adjustment related to the unearned rent is recorded in the journal of the company H.

Explanation
  • Unearned Rent is a liability, and it is decreased by $11,025. So debit unearned rent by $11,025.
  • Rent revenue is a component of Stockholders ‘equity, and it is increased by $11,025. So credit rent revenue by $11,025.

Working Notes:

Calculate rent revenue to be recorded at the end of the accounting period:

RentRevenue=UnearnedrentReceivedfortheperiod

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