Assume that a company received $2,400 in advance for one year membership fee in the fitness center.The entry that would be made to record the recognition of revenue at the end of first month is:
A) Revenue 2,400
Cash 2,400
B) Cash 200
Revenue 200
C) Unearned revenue 200
Revenue 200
D) Revenue 200
Unearned revenue 200

Question

Quizplus · Accepted Answer

The best choice to record the recognition of revenue at the end of first month is option C (Unearned revenue 200; Revenue 200). The company received $2,400 in advance but the revenue is recognized gradually as the services are provided. At the end of the first month, one-twelfth of the revenue is recognized ($2,400/ 12 months = $200). This revenue was previously recorded as unearned revenue, so we need to debit the unearned revenue account to reduce the liability, and credit the revenue account to increase the equity. Therefore, option C is the best choice.

Assume That a Company Received $2,400 in Advance for One