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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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Adjusting entries for unearned fees

The balance in the unearned fees account, before adjustment at the end of the year, is $36,950. Journalize the adjusting entry required if the amount of unearned fees at the end of the year is $14,440.

To determine

Unearned Revenue

Unearned revenue is the revenue which is earned in advance, ahead of providing goods and services. As per the revenue recognition principle it is not recorded in the books of accounts. This is 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 adjusting entry for the unearned fees.

Explanation

The adjusting entry for unearned revenue is as follows:

Date Account Titles and Explanation Debit ($) Credit ($)
December 31 Unearned Revenue (1) 22,510
       Service Revenue22,510
(To record the fees earned at the end of the accounting period)

Table (1)

The impact on the accounting equation for the above referred adjusting entry is as follows:

Assets={Liabilities$22,510}+{Stockholders'Equity+$22,510}

  • Unearned revenue is a liability, and it is decreased by $22,510. So debit unearned fees by $22,510.
  • Service revenue is component of stockholders’ equity and it increased it

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