{"id":181304,"date":"2025-01-10T09:55:41","date_gmt":"2025-01-10T09:55:41","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=181304"},"modified":"2025-01-10T09:55:43","modified_gmt":"2025-01-10T09:55:43","slug":"on-october-1-a-client-pays-a-company-the-full-12000-balance-of-a-year-long-contract-2","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/01\/10\/on-october-1-a-client-pays-a-company-the-full-12000-balance-of-a-year-long-contract-2\/","title":{"rendered":"On October 1, a client pays a company the full $12,000 balance of a year long contract"},"content":{"rendered":"\n<p>On October 1, a client pays a company the full $12,000 balance of a year long contract. Using the Accrual method, what&#8217;s the unearned revenue as of December31?<\/p>\n\n\n\n<p><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-6-color\"><strong>The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n<p>The unearned revenue as of December 31 can be calculated by recognizing how much of the $12,000 has not yet been earned by the company by the end of the year.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Step-by-Step Calculation:<\/h3>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Total amount paid for the contract<\/strong>: $12,000\n<ul class=\"wp-block-list\">\n<li>The client paid the full $12,000 on October 1 for a contract that lasts for a year (from October 1 to September 30 of the following year).<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Revenue recognition under the accrual method<\/strong>:\n<ul class=\"wp-block-list\">\n<li>Under the accrual accounting method, revenue is recognized as it is earned, regardless of when cash is received.<\/li>\n\n\n\n<li>The contract covers a full year, so the revenue must be earned evenly over 12 months.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Revenue earned by December 31<\/strong>:\n<ul class=\"wp-block-list\">\n<li>The period from October 1 to December 31 is 3 months.<\/li>\n\n\n\n<li>The monthly revenue earned is $12,000 \/ 12 months = $1,000 per month.<\/li>\n\n\n\n<li>For the three months from October 1 to December 31, the company would have earned 3 months \u00d7 $1,000 = $3,000.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Unearned revenue<\/strong>:\n<ul class=\"wp-block-list\">\n<li>Unearned revenue is the portion of the payment that has been received but not yet earned.<\/li>\n\n\n\n<li>Since $3,000 has been earned by December 31, the remaining unearned revenue is $12,000 (total payment) &#8211; $3,000 (earned revenue) = $9,000.<\/li>\n<\/ul>\n<\/li>\n<\/ol>\n\n\n\n<h3 class=\"wp-block-heading\">Explanation:<\/h3>\n\n\n\n<p>In accrual accounting, revenue is recognized as it is earned over time. For a one-year contract, the company is obligated to provide services or deliver goods over the entire year. Even though the company received the full $12,000 upfront, it can only recognize a portion of the payment as earned revenue each month.<\/p>\n\n\n\n<p>By December 31, three months of the contract have been completed, so the company has earned $3,000. The remaining $9,000 represents the unearned revenue, as the company has yet to fulfill the remaining 9 months of the contract. This unearned revenue will remain on the balance sheet as a liability until the company has provided the contracted services or goods in the following months.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>On October 1, a client pays a company the full $12,000 balance of a year long contract. Using the Accrual method, what&#8217;s the unearned revenue as of December31? The Correct Answer and Explanation is : The unearned revenue as of December 31 can be calculated by recognizing how much of the $12,000 has not yet [&hellip;]<\/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-181304","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/181304","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=181304"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/181304\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=181304"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=181304"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=181304"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}