Question

Splish Splash Arts offers music and dance lessons. Splish Splash prepares annual financial statements and has a December 31, 2017, year-end.

a) On september 1, collects 15,000 cash for dance lessons running from September 1, 2017 to december 31, 2017.

b) October 1, Collects 5,000 (2,500 per month) cash to rent it's performance stage for the full month of December 2017 and January 2018

c) October 1, 2017 collects 8,000 cash for four months of music lessons. The lessons run from October 1, 2017 to January 31, 2018.

Required: For each transaction, record the initial journal entry and the adjusting entry required on December 31, ,2017.

Answer 1

• All 3 transactions’ initial entry and adjusting entry are recorded side by side for understanding.
• Basically, when advance is received, it is not treated as ‘revenue’ until it is ‘earned’. So far it is not earned, it is credited to “Unearned revenue” account. The revenue earned during the period is then adjusted by debiting the “Uneanred Revenue” account.

Initial Journal Entry				Adjusting Journal Entry
Date	Accounts title	Debit	Credit	Date	Accounts title	Debit	Credit
Sep-01	Cash	$                                   15,000.00		31-Dec	Unearned Service Revenue	$           15,000.00
	Unearned Service Revenue		$                  15,000.00		Service Revenue		$        15,000.00
	(Revenue received in advance)				(Amount of revenue earned during the period)
Oct-01	Cash	$                                     5,000.00		31-Dec	Unearned Rent Revenue	$             2,500.00
	Unearned Rent Revenue		$                     5,000.00		Rent Revenue		$          2,500.00
	(Rent received for Dec and Jan)				(Rent revenue of December now earned)
Oct-01	Cash	$                                     8,000.00
	Unearned Service Revenue		$                     8,000.00	31-Dec	Unearned Service Revenue	$             6,000.00
	(Revenue received in advance)				Service Revenue		$          6,000.00
					(Revenue earned for 3 months: Oct, Jov and Dec, till 31 Dec)