USA Year-End adjusting entries?

[Andrew Graber]

So I'm working on my homework for Financial Accounting class, and I've come across a question that is stumping me. It involves a company receiving payment for 10 months of service half way through the year. I would assume this means that at the end of each month, there would be an adjusting entry to debit service revenue and credit deferred revenue for 1/10 of the total amount. However, the question is asking me to record the year-end adjusting entry for this. I would assume there would be no adjusting entry because it is a monthly payment and revenue is recorded when the service is performed. Am I wrong?

 

[Triest123]

I think your question recognised all the payments received as revenue, so you need to make a year ended adjustment to reclass some payment received as "unearned revenue"

 

[MissBalanceSheet]

Agree with Triest123. Your adjusting entry concerns the remaining 4 months of service due to the customer. The company received 10 months of payment in July and booked it as "revenue" in July. At the end of the year 6 of the 10 months of prepaid service has been completed. The adjusting entry will be to move the remaining 4 months of revenue to unearned/deferred revenue accounts because the company has yet to perform the service.

 

[Andrew Graber]

Sorry, I failed to mention that the question specifically stated that the company credited deferred revenue when they received the money.

 

[Triest123]

Sorry, I failed to mention that the question specifically stated that the company credited deferred revenue when they received the money.

You should make an adjusted entry
Dr Unearned/Deferred revenue
Cr Service income
(Being recognised the service income for 6 month)