On July 7,2012,Saints Inc.received $10,000 in cash from a customer for services to be provided on October 10,2012.Which of the following describes how the transaction should be recorded on July 7,2012?

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Quizplus · Accepted Answer

When a customer pays in advance for services or goods that will be provided later, the company should record it as a liability, called unearned revenue. Hence, on July 7, 2012, when Saints Inc. received $10,000 in cash from the customer, the transaction should be recorded as follows:
Debit Cash $10,000 and Credit Unearned Revenue $10,000. This entry will increase the cash balance and create a liability (unearned revenue) that will be reduced when the services are rendered on October 10, 2012. Once the services are provided, the unearned revenue account will be debited, and service revenue account will be credited for $10,000.