Grossing Inc.receives $10,000 in advance this month for work to be performed next month.This month,the company should record a journal entry that includes a debit to:
A) Cash and a credit to Service Revenue for $10,000.
B) Cash and a credit to Unearned Revenue for $10,000.
C) Cash and a credit to Accounts Receivable for $10,000.
D) Prepaid Services and a credit to Cash for $10,000.

Question

Quizplus · Accepted Answer

The company received cash in advance for work that will be performed next month, meaning the revenue has not yet been earned. Therefore, the company should record a debit to Cash and a credit to Unearned Revenue, which is a liability account that represents the amount of revenue that has been received in advance. Once the work is performed next month, the liability account will be decreased, and Service Revenue will be credited for the amount earned.