Golddigger Services, Inc. provides services to clients. On May 1, Golddigger Services collected $60,000 from a client for 6-months services in advance. Golddigger Services' general journal entry to record this transaction will include a:
A)Debit to Unearned Management Fees for $60,000.
B)Credit to Management Fees Earned for $60,000.
C)Credit to Cash for $60,000.
D)Credit to Unearned Management Fees for $60,000.
E)Debit to Management Fees Earned for $60,000.

Question

Quizplus · Accepted Answer

When Golddigger Services collects $60,000 in advance for 6-months of services, they have not yet earned the fees, so the transaction should be recorded with a credit to Unearned Management Fees for $60,000. This liability account represents the amount of fees that have been collected in advance but not yet earned. The corresponding debit should be to Cash for $60,000, since cash has been received. Therefore, the correct answer is D, Credit to Unearned Management Fees for $60,000.