[fototude]

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.

[pready]

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)