On May 25, Carlin Company received a $550 check from Andy Jeter for services to be performed in the future. The bookkeeper for Carlin Company incorrectly debited Cash for $550 and credited Accounts Receivable for $550. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should:
A) debit Cash $550 and credit Unearned Service Revenue $550.
B) debit Accounts Receivable $550 and credit Service Revenue $550.
C) debit Accounts Receivable $550 and credit Cash $550.
D) debit Accounts Receivable $550 and credit Unearned Service Revenue $550.

Question

Quizplus · Accepted Answer

Since the amount received is for services to be performed in the future, it should not be recorded as revenue until the services are actually provided. Therefore, the incorrect credit to Accounts Receivable must be reversed. The correct entry to make is to debit Accounts Receivable for $550 (to reduce the balance) and credit Unearned Service Revenue for $550 (to record the liability for the services to be performed in the future). This option is only available in choice D.

On May 25, Carlin Company Received a $550 Check from Andy