[gray-matter]

I have a disagreement with my accounting instructor. I try to provide my reasoning and I back it up with examples from our textbook, but he insists that he is right (of course, he doesn't provide any examples--he just vaguely states that it's obvious, simple, etc. etc) I'd like to settle this once and for all.

[pready]

If you provide accounting service to someone on account means that you performed a service and you have not been paid yet. The journal entry for this is:
Debit a revenue account and Credit accounts receivable account for the amount earned.

An unearned revenue account is used when payment is made in advance of a product or service. An example is you pay for a one year magazine subscription. The magazine company will Debit Cash for the amount received and Credit Unearned Revenue for the amount because they have to provide magazines to you for one year. As the company provides magazines to you they will Debit the Unearned Revenue account and Credit an Earned Revenue account for the amount of revenue that is earned.

For example you pay $60 for a magazine in August. The magazine company will Debit Cash for $60 because they received this amount from you and they will Credit Unearned Revenue for $60 because they have to provide 12 months of magazines to you. At Dec 31, which is the year year end for the company they will compute how much revenue they have earned. They provided magazines to you in Sep, Oct, Nov, and Dec. so they will take the $60 you paid * 4/12 to compute the amount earned which is $20, therefore they will Debit Unearned Revenue for $20 and Credit an Earned Revenue account for $20 because $20 of the $60 you paid has now been earned by the company. The company still owes you $40 of magaizines or 8 months of magazines to you. The company's Unearned Revnue account balance will be $40

[gray-matter]

"Debit a revenue account and Credit accounts receivable account for the amount earned."


Don't you mean debit the accounts receivable and cresit a revenue account (the normal balance for assets (accounts receivable is an asset) is debit and the normal balance for a revenue account is credit)? Once you receive cash for the amount billed, then you debit cash and credit accounts receivable at that time.

[morgaine300]

Yes, you're correct. Pready knows the difference so I imagine that was a typo/brain fart. But the rest of what was written is totally correct.

So who won? (I hope the professor was right or I'm going to worry.)

[gray-matter]

From the explanation given above (no one comes out and says "services performed on account reduces unearned revenue" is false), I would assume the statement is false and that is my position. The instructor asserts and continues to assert despite all my explanations (like the one above) that the statement is true and I'm actually taking a lot of heat for it--he wants me to transfer to a different section--I guess he prefers mindless zombies in his class. I think the issue is that he simply doesn't want to say "oh, yes, you're right--I must have inadvertently entered "true" in the answer key instead of "false"" since I, too, can't imagine that any one with even a rudimentary knowledge of accounting would think this statement is true.

[morgaine300]

The statement makes no sense. In real life some goofy things can happen. For instance, someone could have paid you $100 in advance, but then you proceed to do $150 worth of work -- $100 would come off the unearned revenue and $50 would then go on account. So that transaction reduced unearned revenue.

But the "services on account" is the $50 worth of it. The $100 part that came out of unearned isn't "on account."

Not to mention that in class, things like that don't happen. (Unless an instructor is just trying to make you think really hard about what can actually happen, cause textbooks are generally about perfection.)

If it's "on account" it hasn't been paid yet, so how could it possibly be coming out of an unearned account?

Your instructor is totally, absolutely incorrect. I'd say link him to this page, except I'm not sure if you want him seeing your responses. :D He seems more interested in thinking he's right than in you actually learning anything. We all make errors. I admit it when I've made them. Your instructor should be man enough to admit it too. In fact, I have to say this quite ticks me off. (I mean, sheesh, so he screwed up something in an answer key. It happens.)

One thing you're incorrect about, someone with a "rudimentary" knowledge of accounting wouldn't necessarily know this. Your thinking process is actually better than much of what I see, making it even more annoying the instructor would do this. Personally, I'd much rather teach someone like you than a zombie, even if it means having my errors pointed out.