In January, the Caribbean Dream Resort books and accepts a cash payment for $32,000 for vacation services to be provided during spring break in March. The $32,000 would be recorded during January as a:
A) debit to Cash and a credit to Unearned Revenue.
B) debit to Accounts Payable and a credit to Service Revenue.
C) credit to Accounts Receivable and a credit to Service Revenue.
D) credit to Service Revenue and a debit to Prepaid Expenses.

Question

Quizplus · Accepted Answer

The payment received in advance for vacation services constitutes unearned revenue, which is a liability for the company until the services are provided. Therefore, the correct journal entry is a debit to Cash (asset) and a credit to Unearned Revenue (liability).

In January, the Caribbean Dream Resort Books and Accepts a Cash