Assuming unearned revenues are originally recorded in balance sheet accounts, the adjusting entry to record earning of unearned revenue is:
A) Decrease a liability; increase revenue.
B) Increase an expense; increase a liability.
C) Increase an expense; decrease a liability.
D) Increase an asset; increase revenue.
E) Increase an expense; decrease an asset.

Question

Quizplus · Accepted Answer

Unearned revenues are originally recorded as a liability because the company has received payment for goods or services that have not yet been provided. When the company earns the revenue, the liability decreases and revenue increases. Therefore, the adjusting entry to record the earning of unearned revenue is to decrease a liability account and increase a revenue account.

Assuming Unearned Revenues Are Originally Recorded in Balance Sheet Accounts