Tan Traders received a $750 advance payment from a customer for work to be carried out in the next accounting period.The accounting entry to initially record the $750 is:

Question

Quizplus · Accepted Answer

Since Tan Traders received an advance payment, it is considered as unearned income until the work is carried out. Therefore, the accounting entry to initially record the $750 would be to debit bank (asset account) and credit unearned income (liability account). Option B correctly reflects this by debiting bank and crediting unearned income. Option A is incorrect because it debits unearned income, which increases the liability account, and credits bank, which increases the asset account. Option C debits bank and credits creditor, which is not relevant to the transaction. Option D debits income earned, but the income isn't earned yet, so it would be an incorrect account to debit.

Tan Traders Received a $750 Advance Payment from a Customer