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Summary Questionfor unearned revenues, indicate if the account type shown is over or understated p

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2024/2025 Written for academic year
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Course ACC 561
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for unearned revenue1Questionfor unearned revenues, indicate if the account type shown is over or understated prior to adjustment and what type of account is debited and credited in the unearned revenue adjusting entry.Answer & ExplanationUnearned revenues are initially recorded as liabilities because they represent payments received before services are performed or goods are delivered. Prior to adjustment, the following occurs:1.Account Type Over/Understated:oLiabilities: OverstatedoRevenues: UnderstatedThis is because the revenue has not yet been recognized in the income statement, and the liability remains on the balance sheet until it is adjusted.1.Adjusting Entry for Unearned Revenue:oDebit (Decrease) Liability Account: Unearned RevenueThis reduces the liability since part of it has now been earned.oCredit (Increase) Revenue Account: Service Revenue or Sales RevenueThis recognizes the revenue

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Question


for unearned revenues, indicate if the account type shown is over or understated

prior to adjustment and what type of account is debited and credited in the

unearned revenue adjusting entry.




Answer & Explanation


Unearned revenues are initially recorded as liabilities because they represent

payments received before services are performed or goods are delivered. Prior

to adjustment, the following occurs:


1. Account Type Over/Understated:


o Liabilities: Overstated


o Revenues: Understated


This is because the revenue has not yet been recognized in the income

statement, and the liability remains on the balance sheet until it is adjusted.

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  • for unearned revenue1questionfor unearned revenues
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