A company received $5,000 for 100 one-year subscriptions on July 1. The journal entry to record this cash receipt would include a:
A)credit to Accounts Payable for $5,000.
B)debit to Prepaid Expenses for $5,000.
C)credit to Unearned Revenue for $5,000.
D)debit to Note Payable for $5,000.

Question

Quizplus · Accepted Answer

The company has received cash in advance for the one-year subscriptions, which creates a liability of unearned revenue. Therefore, a credit to Unearned Revenue for $5,000 would be necessary. Option A is incorrect as there is no purchase of goods or services on credit. Option B is incorrect as prepayment of expenses would suggest that the company has paid for something it has not yet received. Option D is incorrect as there is no indication that the company has borrowed money to finance the receipt of cash.

A Company Received $5,000 for 100 One-Year Subscriptions on July