Duluth Company collected a $6,000 cash advance from a customer on November 1, Year 1 for work to be performed over a six-month period beginning on that date. If the year-end adjustment is properly recorded, what will be the effect of the adjusting entry on Duluth's Year 1 financial statements?
A) Increase assets and decrease liabilities
B) Increase assets and increase revenues
C) Decrease liabilities and increase revenues
D) No effect

Question

Quizplus · Accepted Answer

The adjusting entry will decrease the liability account (unearned revenue) by $6,000 and increase the revenue account by $6,000. Therefore, the effect of the adjusting entry on Duluth's Year 1 financial statements will be a decrease in liabilities and an increase in revenue.

Duluth Company Collected a $6,000 Cash Advance from a Customer