On 1 November 2018 the publishers of 'Home' magazine received $198 (including GST) in advance for a 12-month subscription to their monthly issue. Which is the correct entry to be recorded on receipt of the subscription?

Question

Quizplus · Accepted Answer

Option B is the correct entry as it follows the accrual accounting principle of recognizing revenue only when earned. The $198 includes $18 of GST payable, which should be separated from the amount of revenue earned. The remaining $180 represents unearned revenue, which is recorded as a liability (unearned subscriptions) until the publisher delivers the issues of Home magazine as per the subscription agreement. Option A and D are incorrect as they do not separate the GST payable and do not recognize the unearned revenue, respectively. Option C is also incorrect as it records the subscription amount as a prepaid asset, which is not appropriate as it becomes revenue only after the publisher delivers the magazines as per the subscription agreement.

On 1 November 2018 the Publishers of 'Home' Magazine Received