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28 June, 17:51

On August 1 of Year 1 Accounting Associates (AA) collected $1,200 cash for consulting services to be provided for one year beginning immediately. Based on this information, which of the following show how the required adjustment on December 31, Year 1 would affect AA's ledger accounts? a). Revenue $500 Unearned revenue $500 b) Revenue $700 Unearned revenue $700 c) Unearned Revenue $500 Revenue $500 d) Unearned revenue $700 Revenue $700

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  1. 28 June, 20:44
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    c) Unearned Revenue $ 500, Revenue $ 500

    Explanation:

    When the cash was received on August 01, no accounting services were provided so the entry would have been:

    Cash Debit $ 1,200

    Unearned revenue Credit $ 1,200

    Unearned Revenue is a liability account

    On December 31, a recognition needs to be made for the services revenue earned and hence the amount for 5 months amounting is debited to unearned revenue and revenue credited with $ 500.
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