The adjusting entry to record the amount of revenue earned that had been collected in advance requires a(n)
Blank
______ to Unearned Revenue and a(n)
Blank
______ to Sales Revenue.

Question

The adjusting entry to record the amount of revenue earned that had been collected in advance requires a(n) 
Blank
______ to Unearned Revenue and a(n) 
Blank
______ to Sales Revenue.

BlackTom AI · Accepted Answer

Unearned revenue is a liability and must be reduced when the company has now earned the revenue; revenue accounts normally carry credit balances, so recognizing revenue requires a credit to a revenue account.

1. Relevant knowledge points and concepts
- Unearned Revenue (also called Deferred Revenue) is a liability recorded when cash is received before services/goods are provided.
- Revenue is recognized when earned (revenue recognition principle), and revenue accounts have normal credit balances.
- To remove the liability and recognize income, you decrease (debit) the liability and increase (credit) the revenue account.

2. Step-by-step reasoning process
- When cash was received in advance, the initial entry was: Debit Cash; Credit Unearned Revenue. That created a liability.
- Later, when the service is performed or goods delivered, the company must reverse the liability (reduce it) and record the earned revenue.
- Reducing a liability requires a debit to the liability account (Unearned Revenue).
- Recording revenue requires a credit to the revenue account (Sales Revenue).

3. Journal entry with intermediate steps (example amount)
- Suppose $1,000 was collected in advance originally: initial: Debit Cash $1,000; Credit Unearned Revenue $1,000.
- When earned: Debit Unearned Revenue $1,000 (reduces liability); Credit Sales Revenue $1,000 (recognizes revenue on the income statement).

4. Why the correct answer is correct
- Debiting Unearned Revenue decreases the liability that was created earlier.
- Crediting Sales Revenue increases revenue (credit is the normal balance), properly reflecting earned income and increasing retained earnings via net income.

5. Why other options are incorrect
- "Credit; Credit": Crediting Unearned Revenue would increase the liability, contrary to the need to reduce it.
- "Debit; Debit": Debiting Sales Revenue would decrease revenue (opposite of what’s needed).
- "Credit; Debit": Crediting Unearned Revenue increases liability and debiting Sales Revenue reduces revenue—both opposite of required effects.

6. Conclusion
The correct adjusting entry is a Debit to Unearned Revenue and a Credit to Sales Revenue, matching the provided answer: Debit; Credit.

The adjusting entry to record the amount of revenue earned that had been collected in advance requires a(n) Blank to Unearned Revenue and a(n) Blank to Sales Revenue.Single choice

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The adjusting entry to record the amount of revenue earned that had been collected in advance requires a(n) Blank ______ to Unearned Revenue and a(n) Blank ______ to Sales Revenue.Single choice