On April 15,Landscape by Design Inc.receives cash of $2,000 in advance from a customer who will be out of the country for landscaping services to be performed during the four-month period beginning on June 1.How would Landscape by Design record this transaction?

Question

Quizplus · Accepted Answer

Since the cash is received in advance, it is not yet earned revenue. Therefore, the company should record this as a liability called Unearned Revenue, and credit the cash received. This will balance the entry and will not affect the income statement until the service is performed. So, the correct journal entry for the transaction is to debit Cash for $2,000 and credit Unearned Revenue for $2,000.