Question

58

Review Chapter with answer to Mont ACROBAT Tell me what you want to de View Splendid Demo He Show Media Control Splendid off Splendid On A company that receives money in advance of performing a service a. increases cash and increases unearned fees. b. decreases unearned fees and decreases accounts payable c. increases cash and increases prepaid fees. d. increases cash and decreases accounts receivable. 58 dd notes e

Answer 1

Correct Answer is a increases cash and increases unearned fees.

Money receeived in advance of performing services is called Unearned Revenue. Unearned revenue arises when cash has been received but revenue is not earnes (services are not provided). It increases cash and increases unearned fees

For recording Unearned revenue, Journal entry passed is as follows

Cash A/c ...Dr.

To  Unearned Revenue A/c.

(Being advance received for performing services and recorded as unearned revenue)

Cash Account (Asset) is Debited, so Cash is increasing. Unearned Fee A/c (Liability) is Credited, so Unearned Fee is increasing

Analysis of other options -

B - decreases unearned fees and decreases accounts payable -  This option is incorrect as accounts payable is not affected and unearned fees is increased not decreased

C. increases cash and increases prepaid fees -  This option is incorrect as prepaid fees is expnese account, which is not affected. Instead, unearned fees is increased

D. increases cash and decreases accounts receivable -  This option is incorrect as accounts receivables are not affected. Instead, unearned fees is increased

Thus A company that receeives money in advance of performing a service increases cash and increases unearned fees