Question

In: Accounting

Received a cash advance of $3500 from a client for the tax consultancy services to be...

Received a cash advance of $3500 from a client for the tax consultancy services to be performed in the next three months. The journal entry to record the transaction is:

Select one:

a. debit, service revenue $3500 and credit, cash $3500.

b. debit, service revenue received in advance $3500 and credit, cash $3500.

c. debit, cash $3500 and credit, service revenue received in advance $3500.

d. debit, service revenue received in advance $3500 and credit, service revenue $3500.

Solutions

Expert Solution

Option C is the correct one.

Cash Dr. $3500

To Service Revenue received in Advance $3500

Explanation :

In this Jounal entry, the reciept of cash is recognized by debiting the same alongwith the liability to provide the service for the next 3 months by crediting it.

Hence when the service will be actually provided then:

Service Advance will be debited and the service revenue will be recognised by crediting the same.

Explanation for not opting other options:

Option A Service revenue Dr. 3500

To Cash. 3500

(Interpreting that service revenue is an expense which is paid by cash - Hence Incorrect)

Option B Service Revenue received in Advance Dr. 3500

To Cash. 3500

(Interpreting that service revenue advance is not recieved but rather paid out of own cash - Hence I correct)

Option D Service Revenue recieved in Advance Dr. 3500

To Service Revenue. 3500

(Interpreting - Service revenue is recognised out of service revenue recieved in advance without actually creating the liability for the same and recognising on the basis of Project completing metho - Hence Incorrect)

ekkarill92 answered 1 year ago
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