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Only $4000 of the services was provided, but why is it a debit for Unearned Fees?
Asked Mar 29, 2011, 11:21 PM
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1 Answer The balance in unearned fees represented the November 1 receipt in advance for services to be provided. Only $4000 of the services was provided between November 1 and November 30. November 30th Unadjusted Trail Balance has the following line item. Unearned Fees $12000 Why is it: Unearned Fees $4000 Fees Earned $4000 I don't get it?! I thought It would be Unearned Fees $8000 Fees Earned $8000 Since $8000 worth of services wasn't provided but is on the trial balance sheet shouldn't it be credited? Why are we Debiting $4000 on top of the $12000? Thank you. |
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| Because when a customer pays in advance for goods or services the company is obligated (liability) to provide the goods or services to the customer. The company is required to provide $12,000 worth of services to the customer. At the end of November the company only provided $4,000 worth of the services so they are still obligated and required to provide $8,000 worth of services to the customer. The $4,000 worth of services that have have been provided is no longer a liability, as the service has been earned and is realizable by the company. The adjusting entry will be: Debit Unearned Revenue for $4,000 (which reduces your liability and is a balance sheet account) Credit Fees earned for $4,000 (increases your revenue and is an income sheet account) | ||||
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