Which of the following shows how the adjusting entry to recognize services provided to a client who paid for the services prior to the work being performed?

Question

Quizplus · Accepted Answer

When a company collects cash for services before they are provided, the company recognizes an obligation to provide the services in the future (unearned revenue). When the company settles its obligation by providing services, the liability account (unearned revenue) decreases and the revenue account increases. This is a claims exchange transaction. The increase in revenue causes net income to increase. The increase in net income causes stockholders' equity (retained earnings) to increase. There is no effect on cash flow because the cash flow was previously recognized at the time the cash was collected from the client.

Which of the Following Shows How the Adjusting Entry to Recognize