BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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debit to cash, $2000; credit to legal fees revenue, $2000
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debit to accounts receivable, $2000; credit to legal fees revenue, $2000
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debit to unearned revenue, $2000; credit to legal fees revenue, $2000
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debit to cash, $2000; credit to unearned revenue, $2000
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debit to unearned revenue, $2000; credit to cash, $2000
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Detailed explanation-1: -The answer is A. Depreciation expense is closed at the end of the accounting period. A depreciation expense is a nominal account and must be closed to retained earnings at the end of the period.
Detailed explanation-2: -Accrual accounting is a method that records revenue when it is earned and records expenses when they are incurred, not when the cash is received. Different than cash accounting, this method provides a more realistic understanding of income and expenses and helps with long term projections.
Detailed explanation-3: -Revenue Recognition Principle: Accrual Accounting Concept In short, the revenue recognition principle states that revenue is required to be recognized on the income statement in the period that the products/services were delivered, rather than when the cash payment is received.
Detailed explanation-4: -Essentially, the revenue recognition principle means that companies’ revenues are recognized when the service or product is considered delivered to the customer-not when the cash is received.