Which accounts does CBA debit and credit in the adjusting journal entry on December 31?

Which accounts does CBA debit and credit in the adjusting journal entry on December 31?

• A. Unearned Revenue, Cash, To reflect revenue earned
• B. Unearned Revenue, Revenue, To reflect revenue earned
• C. Revenue, Unearned Revenue, To reflect revenue earned
• D. Cash, Revenue, To reflect revenue earned

Answer: (B)

This scenario tests adjusting for revenue earned that was previously collected in advance. When revenue is earned, you reduce the liability that was set up for unearned revenue and record the income as revenue. So you should debit Unearned Revenue (to shrink the liability) and credit Revenue (to recognize the earned income). Cash is not involved in this adjusting entry because the cash was already received when the liability was created. The other options either involve cash, or they debit the revenue account (which would decrease revenue) or otherwise misstate the direction of the accounts.

This scenario tests adjusting for revenue earned that was previously collected in advance. When revenue is earned, you reduce the liability that was set up for unearned revenue and record the income as revenue. So you should debit Unearned Revenue (to shrink the liability) and credit Revenue (to recognize the earned income). Cash is not involved in this adjusting entry because the cash was already received when the liability was created. The other options either involve cash, or they debit the revenue account (which would decrease revenue) or otherwise misstate the direction of the accounts.