On March 1, a company collects revenue in advance for the next twelve months and credits a liability account. The adjusting entry at year end on the end-of-period spreadsheet would
A) increase a liability account
B) decrease an asset account
C) decrease a revenue account
D) decrease a liability account

Question

Quizplus · Accepted Answer

The adjusting entry at year-end would decrease the liability account that was initially credited when the revenue was collected in advance. This is because as time passes, the company has fulfilled its obligation to provide goods or services to the customers who pre-paid, and therefore the liability decreases. None of the other choices are correct, as there is no asset account being decreased or revenue account being affected by the adjusting entry.

On March 1, a Company Collects Revenue in Advance for the Next