On August 31,2018,Allright Services received $3,500 in advance of performing the service.Which journal entry is needed to record the receipt of cash?
A) Debit Unearned Revenue $3,500, and credit Cash $3,500.
B) Debit Cash $3,500, and credit Service Revenue $3,500.
C) Debit Unearned Revenue $3,500, and credit Service Revenue $3,500.
D) Debit Cash $3,500, and credit Unearned Revenue $3,500.

Question

Quizplus · Accepted Answer

When a company receives cash in advance of performing a service, it creates a liability called "Unearned Revenue," as it has not yet earned the revenue. Therefore, we need to Debit Cash $3,500 (as we received the cash) and Credit Unearned Revenue $3,500 (as it is a liability).

On August 31,2018,Allright Services Received $3,500 in Advance of Performing