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A customer prepaid $1,000 on 1 June, recorded as Unearned Fees. By 30 June the business had earned $600 of it. What is the correct adjusting entry?
ADebit Fees Earned $600; credit Unearned Fees $600
BDebit Unearned Fees $600; credit Fees Earned $600
CDebit Unearned Fees $400; credit Fees Earned $400
DDebit Cash $600; credit Fees Earned $600
Answer & Solution
Correct answer: B. Debit Unearned Fees $600; credit Fees Earned $600
1. The amount earned during the month is $\$600$.
2. The liability is reduced (debit Unearned Fees $\$600$) and revenue is recognised (credit Fees Earned $\$600$).
3. So B is correct.
4. A reverses the entry; C uses the $\$400$ still owed; D wrongly brings in cash, which was received on 1 June.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §2.4.1 "Unearned Fees—Deferred Revenue", p.78_