[jjerks]

What is the correct adjusted entry that should be made to these accounts:

Determined that company had performed 2,000 of the services for which it was paid on December 4th.


The Dec. 4th account was as follows: Received 3,500 cash from a client as an advance payment for services to be performed in the future.

Cash 3500
Unearned fees 3500

[morgaine300]

While your entry is correct for Dec 4th, that's not the adjusting entry. The Dec. 4th entry is just a normal day-to-day cash transaction.

An adjusting entry is the one you do at the end of the period. You put the amount into the unearned account because it was paid in advance but you had not done any of the services yet, and therefore earned nothing yet. That's a liability account because you still have the obligation to perform the services. (i.e. you "owe" work.)

Then by the end of December, when adjusting entries are done, $2000 of the work has actually been performed. The object of adjusting entries is to recognize revenues or expenses that have been incurred but not yet recognized as such for some reason. It's things that are going to cross accounting periods. i.e. this is a total of $3500, but only $2000 gets earned this period, throwing $1500 into next period. That's spanning over more than one accounting period. So this is what adjusting entries are for.

If you've now earned $2000 of this, leaving $1500 as yet unearned, what do you think the entry for that would be? Remember that you have to both recognize how much you've earned, and get the liability account corrected to 12/31.