On October 1, a client pays a company the full $12,000 balance of a year-long contract. Using the accrual method, what’s the unearned revenue as of December 31<\/p>\n\n\n\n
The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n Under the accrual accounting method, revenue is recognized when it is earned, regardless of when cash is received. The company received the full payment of $12,000 for a one-year contract on October 1. To determine the unearned revenue as of December 31, we need to understand that the payment covers the full 12-month period, but the revenue will be recognized over the duration of the contract.<\/p>\n\n\n\n The total contract is worth $12,000 for 12 months. Therefore, the monthly revenue from the contract is:<\/p>\n\n\n\n [ Since the contract started on October 1, the company will recognize revenue for the months of October, November, and December.<\/p>\n\n\n\n [ Thus, by December 31, the company has earned $3,000 of the contract amount.<\/p>\n\n\n\n Unearned revenue represents the amount of money the company has received but not yet earned. Since $3,000 has been earned by December 31, the remaining $9,000 is unearned revenue. This is because the company has not yet provided the services for January through September.<\/p>\n\n\n\n [ As of December 31, the unearned revenue is $9,000. This amount represents the portion of the $12,000 that has been paid but not yet earned by the company because the service period continues into the next calendar year.<\/p>\n\n\n\n This distinction between earned and unearned revenue ensures that the company accurately reflects its financial performance, recognizing revenue only when it has been earned, not when the cash is received.<\/p>\n","protected":false},"excerpt":{"rendered":" On October 1, a client pays a company the full $12,000 balance of a year-long contract. Using the accrual method, what’s the unearned revenue as of December 31 The Correct Answer and Explanation is : Under the accrual accounting method, revenue is recognized when it is earned, regardless of when cash is received. The company […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-169774","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/169774","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=169774"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/169774\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=169774"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=169774"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=169774"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Step 1: Determine the amount of revenue earned by December 31<\/h3>\n\n\n\n
\\frac{\\$12,000}{12} = \\$1,000 \\text{ per month}
]<\/p>\n\n\n\n
3 \\text{ months} \\times \\$1,000 = \\$3,000
]<\/p>\n\n\n\nStep 2: Calculate the unearned revenue as of December 31<\/h3>\n\n\n\n
\\$12,000 – \\$3,000 = \\$9,000
]<\/p>\n\n\n\nConclusion<\/h3>\n\n\n\n