Two sisters operate a bed and breakfast on the coast of Maine.As customers make reservations they are required to pay cash in advance equal to one-half of the rate for their stay.How should the sisters record the cash received as reservations are made?

Question

Quizplus · Accepted Answer

As customers are paying in advance, the money received should not be recorded as revenue but rather as a liability called Unearned Service Revenue. This is because the sisters have not yet provided the service to the customer. Therefore, the correct journal entry would be to increase Cash (asset) and Unearned Service Revenue (liability) to record the payment received.

Two Sisters Operate a Bed and Breakfast on the Coast