Summer Leasing received $12,000 for 24 months rent in advance.How should Summer record this transaction?

Question

Quizplus · Accepted Answer

When a company receives payment for services it has not yet provided, it is considered unearned or deferred revenue. In this case, Summer Leasing received rent in advance, so it should record the transaction by debiting Cash (asset account) and crediting Unearned Revenue (liability account). As the months progress and Summer Leasing provides the rent services, it will recognize the revenue and reduce the Unearned Revenue account by debiting it and crediting the Rent Revenue (income) account. Thus, initially, the entry would be:

Debit Cash $12,000
Credit Unearned Revenue $12,000

Summer Leasing Received $12,000 for 24 Months Rent in Advance