Patricia Event Planning Service records prepaid expenses and unearned revenues using the alternative treatments. Patricia makes adjusting entries as needed to bring her books to the full accrual basis once a year at the end of the year. On December 15, she collected $1,000 from a customer in advance for a series of events that will start late December and end in March. At the end of the year, she rendered approximately 10% of the services for her customer. The adjusting entry on December 31 will include a debit to Service Revenue for $900.

Question

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Since Patricia records unearned revenues using the alternative treatment, she initially records the $1,000 as unearned revenue. After rendering approximately 10% of the services at the end of the year, she needs to adjust her books by recognizing $900 of the revenue earned ($1,000 x 10% = $100; $1,000 - $100 = $900). Therefore, the adjusting entry on December 31 includes a debit to Service Revenue for $900.

Patricia Event Planning Service Records Prepaid Expenses and Unearned Revenues