On October 1 of the current year, Wood Services received $15,000 for services to be performed evenly over the next 12 months. Wood Services initially recorded the $15,000 as service revenue. The adjusting entry on December 31 of the current year will include a:

Question

Quizplus · Accepted Answer

The adjusting entry should recognize the portion of revenue that has not yet been earned. By December 31, three months of services have been performed, so $3,750 (3/12 of $15,000) should be recognized as earned revenue. The remaining $11,250 is unearned and should be debited from service revenue to adjust it correctly.

On October 1 of the Current Year, Wood Services Received