XYZ receives $1000 in June for rent from a client for the month of July. How should this be recorded by XYZ assuming a balance date of 30 June?
A) Debit cash $1000 and credit accounts receivable $1000
B) Debit cash $1000 and credit unearned revenue $1000
C) Debit unearned revenue $1000 and credit cash $1000
D) Debit cash $1000 and credit prepaid rent $1000

Question

Quizplus · Accepted Answer

Since the client has paid in advance for rent in July, it should be recorded as unearned revenue (a liability) until the rent is actually earned in July. Therefore, the transaction should be recorded as a debit to cash (an asset) and a credit to unearned revenue (a liability). Option B is the only option that records the transaction in this way.

XYZ Receives $1000 in June for Rent from a Client