On the last day of December 2013. Billings. Inc. entered into a transaction that

Question

On the last day of December 2013. Billings. Inc. entered into a transaction that resulted in a receipt of $54,000 cash in advance related to services that will be provided during January 2014. During December of 2013, the company also performed $34,000 of services which were neither billed nor paid. Prior to December adjustments and before these two transactions were recorded, the company's trial balance showed service revenue of $800.000 at December 31. 2013. There are no other prepaid services yet to be delivered and during the month all outstanding accounts receivable from prior months were collected. If Billings. Inc. makes the appropriate adjusting entry, how much will be reported on the December 31, 2013 balance sheet as accounts receivable? Select one:

Explanation / Answer

A $34000

In December 2013, $54000 was received as advance of the services to be performed, that makes this $54000 a current liability in nature of "unearned service income" . Therefore Accounts receivable balance would not be effected by $54000

entry:

cash Dr.$54000

To unearned service income $54000

Whereas $34000 is performed, but unbilled .This amount would be considered as Accounts recievable for previous year(31st , Decmeber 2013), because this amount is yet to be recovered from receivable

entry:

Accounts recievable Dr.$34000

To service revenue $34000

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