4500 4500 The two T accounts relating to training fees are Unearned Service

4500 4500 the two t accounts relating to training

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4,500 4,500 The two T-accounts relating to training fees are Unearned Service Fees (a liability) and Service Revenue. These accounts appear as follows on 2010 December 31 (before adjustment): (Dr.) Unearned Service Fees (Cr.) (Dr.) 2010 Dec. 7 Cash received in advance 4,500 Service Revenue (Cr.) *The $10,700 balance came 2010 Bal. before adjustment 10,700* from transactions discussed in Chapter 2. The balance in the Unearned Service Fees liability account established when MicroTrain received 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 the amount of the services performed by the company from a liability account to a revenue account. If we assume that MicroTrain earned one-third of the USD 4,500 in the Unearned Service Fees account by December 31, then the company transfers USD 1,500 to the Service Revenue account as follows: 2010 Dec. Adjustment 5— Revenue earned 3 1 Unearned Service Fees Service Revenue To transfer a portion of training fees from the liability account to the revenue account. 1,500 1,500 After posting the adjusting entry, the T-accounts would appear as follows: Decreased by $1,500 (Dr.) Unearned Service Fees (Cr.) 2010 2010 2010 Dec. 31 Adjustment 5 1,500 Dec. 7 Cash received in advance 4,500 Bal. after adjustment 3,000 (Dr.) Service Revenue (Cr.) 2010 Bal. before adjustment Dec. 31 Adjustment 5 10,700 1,500 Increased — by $1,500 Bal. after adjustment 12,200 MicroTrain reports the service revenue in its income statement for 2010. The company reports the USD 3,000 balance in the Unearned Service Fees account as a liability in the balance sheet. In 2011, 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 the money to the training service customers. For instance, assume that MicroTrain could not perform the remaining USD 3,000 of training services and would have to refund the money. Then, the company would make the following entry: Unearned Service Fees 3,000 Cash 3,000 To record the refund of unearned training fees. Thus, the company must either perform the training services or refund the fees. This fact should strengthen your understanding that unearned service fees and similar items are liabilities. Accountants make the adjusting entries for deferred items for data already recorded in a company’s asset and liability accounts. They also make adjusting entries for accrued items, which we discuss in the next section, for business data not yet recorded in the accounting records.
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