A company that receives money in advance of performing a service. What is the journal entry for the transaction?

Question

Quizplus · Accepted Answer

When a company receives money in advance of performing a service, it creates a liability called Unearned Revenue. To record this transaction, we will debit Cash and credit Unearned Revenue. Therefore, the correct journal entry is Cash - Debit; Unearned Revenue - Credit. Option A is incorrect as Accounts Payable is a liability and would not be affected by this transaction. Option C is incorrect as Prepaid Fees is an asset account and it does not capture the fact that the company has not yet performed the service. Option D is incorrect as Accounts Receivable is an asset account and would not be affected by this transaction.

A Company That Receives Money in Advance of Performing a Service