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4,5004,500The two T-accounts relating to training fees are Unearned Service Fees (a liability) and ServiceRevenue. These accounts appear as follows on 2010 December 31 (before adjustment):(Dr.) Unearned Service Fees (Cr.)(Dr.) 2010Dec. 7 Cash receivedin advance 4,500Service Revenue (Cr.)*The $10,700 balance came2010Bal. before adjustment 10,700*from transactions discussed in Chapter 2.The balance in the Unearned Service Fees liability account established when MicroTrainreceived the cash will be converted into revenue as the company performs the training services.Before MicroTrain prepares its financial statements, it must make an adjusting entry to transfer theamount of the services performed by the company from a liability account to a revenue account. Ifwe assume that MicroTrain earned one-third of the USD 4,500 in the Unearned Service Feesaccount by December 31, then the company transfers USD 1,500 to the Service Revenue account asfollows:2010 Dec.Adjustment 5—Revenue earned31Unearned Service FeesService RevenueTo transfer a portion of training fees from the liabilityaccount to the revenue account.1,5001,500After posting the adjusting entry, the T-accounts would appear as follows:Decreased by $1,500(Dr.)Unearned Service Fees(Cr.)201020102010 Dec. 31Adjustment 5 1,500Dec. 7 Cash receivedin advance4,500Bal. after adjustment3,000(Dr.)Service Revenue(Cr.)2010Bal. before adjustment Dec. 31 Adjustment 510,7001,500 Increased — by $1,500Bal. after adjustment12,200MicroTrain reports the service revenue in its income statement for 2010. The company reportsthe USD 3,000 balance in the Unearned Service Fees account as a liability in the balance sheet. In2011, the company will likely earn the USD 3,000 and transfer it to a revenue account.If MicroTrain does not perform the training services, the company would have to refund themoney to the training service customers. For instance, assume that MicroTrain could not performthe remaining USD 3,000 of training services and would have to refund the money. Then, thecompany would make the following entry:Unearned Service Fees3,000Cash3,000To record the refund of unearned training fees.Thus, the company must either perform the training services or refund the fees. This fact shouldstrengthen your understanding that unearned service fees and similar items are liabilities.Accountants make the adjusting entries for deferred items for data already recorded in acompany’s asset and liability accounts. They also make adjusting entries for accrued items, whichwe discuss in the next section, for business data not yet recorded in the accounting records.
An accounting perspective:Business insightAccording to the National Association of Colleges and Employers, the average offer to anaccounting major in 2009 was USD 48,334 and tends to increase each year. According torecent surveys, the market for accounting graduates remains brisk. Often, one of thechief problems for graduates is how to handle multiple job offers. As a result of the lowunemployment rate, employers—especially small accounting firms with limitedrecruiting budgets—are doing whatever they can to grab qualified candidates.