The Rachel Corp. provides consulting services. One of its customers paid it $6,000 on December 1, 2016 for services in both December 2016 and January 2017. Rachel Corp originally recorded the receipt of this money as an increase in cash and as an increase in deferred revenues. What adjustment is required on December 31, 2016?
A) No adjustment is needed
B) An increase in cash of $3,000 and an increase in equity of $3,000 (there would be $3,000 of revenue)
C) A decrease in deferred revenues of $3,000 and an increase in equity of $3,000 (There would be $3,000 of revenues)
D) An increase of deferred revenues of $3,000 and an increase in revenues and equity of $3,000.

Question

Quizplus · Accepted Answer

The adjustment required on December 31, 2016 is a decrease in deferred revenues of $3,000 (since services have been provided in December 2016) and an increase in equity of $3,000 (representing revenue earned in December 2016). Therefore, choice C is the correct answer.