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10 September, 07:23

a. Business receives $3,000 on January 1 for 10-month service contract for the period January 1 through October 31. (When the cash was received on January 1 assume that a liability account was credited. Assume services are performed evenly each month throughout the term of the contract.)

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  1. 10 September, 10:51
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    Solution:

    Deffered revenue means when an organization receives the payment prior to the goods delivered to conusmer. In the given case, business receives $3000 on 1, January for ten month service (From january to October).

    The revenue per month needs to be calculated:

    Revenue per month = Revenue for ten months divided by Total number of months

    By putting the figures we get,

    Revenue per month = $3000 divided by 10 = $300 per month

    An adjusting entry needs to be passed:

    Date Particulars debit credit

    31st jan Unearned Revenue $300

    Service Revenue $300

    (Service revenue that has been collected in advance)
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