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Jim is a lawyer who requires that his clients pay him in advance of legal services rendered. Jim routinely credits Legal Service Revenue when his clients pay him in advance. In June Jim collected $12,000 in advance fees and completed 75% of the work related to these fees. What adjusting entry is required by Jim's firm at the end of June

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Tundexi

Answer:

Legal Service Revenue Dr $3000

Unearned Revenue Cr $3000

This is due to the fact that the amount of 25% of the work is undone. Hence, it is recorded as a liability and since it is earned, it is shown as unearned revenue.

Parrain

The adjusting entry required as a result of Jim collecting money in advance is:

Date                 Account Title                                   Debit              Credit

June XXXX     Legal Service Revenue               $3,000

                        Unearned Revenue                                               $3,000

Revenue should only be recognized when the work related to it has been done. Jim only managed to do 75% of the work which means that revenue cannot be recognized on 25%.

This 25% is:

= 25% x 12,000

= $3,000

This amount will be credited to the Unearned Revenue account until Jim completes the work.

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