Q3.25: On November 15, Paulson Painting received a $6,000 cash payment from Apex
ID: 2579455 • Letter: Q
Question
Q3.25: On November 15, Paulson Painting received a $6,000 cash payment from Apex Inc. in exchange for painting services to be provided in December. When posting the journal entries related to this payment, Paulson's accountant debits the Cash account for $6,000 and credits Service Revenue for $6,000. Which of the following statements best describes the results of this posting? A In Paulson's general ledger, the ending balances for both the Cash account and the Service Revenue account will be correct. In Paulson's general ledger, the ending balance for the Cash account will be too low, the ending balance for the Service Revenue account will be too low, and the ending balance for the Unearned Service Revenue account will be too high B CIn Paulson's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Service Revenue account will be too high and the ending balance for the Unearned Service Revenue account will be too low In Paulson's general ledger, the ending balances for the Cash and Service Revenue accounts will be too high. However, the ending balance for the Unearned Service Revenue account will be too low.Explanation / Answer
Answer: The result is best described by para C. The accountant has rightly debited the cash account but wrongly credited the Service Revenue account. Since the services will be rendered in December, the amount should be credited to Unearned Service revenue Account in November and in December the amount should be credited to Service revenue with a corresponding debit to Unearned Revenue.
Hence, in November cash account is correct, however Service revenue account is overstaed by $6,000 and unearned revenue account is understated by the same amount.
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