On May 25, Yellow House Company received a $650 check from Grizzly Bean for services to be performed in the future. The bookkeeper for Yellow House Company incorrectly debited Cash for $650 and credited Accounts Receivable for $650. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should:
A) debit Cash $650 and credit Unearned Service Revenue $650.
B) debit Accounts Receivable $650 and credit Service Revenue $650.
C) debit Accounts Receivable $650 and credit Cash $650.
D) debit Accounts Receivable $650 and credit Unearned Service Revenue $650.

Question

Quizplus · Accepted Answer

Since the payment was received for services to be performed in the future, it should be recorded as Unearned Service Revenue, which is a liability account. Therefore, the bookkeeper should debit Accounts Receivable to correct the mistake and credit Unearned Service Revenue for the same amount. So, the correct entry would be debit Accounts Receivable $650 and credit Unearned Service Revenue $650.

On May 25, Yellow House Company Received a $650 Check