Question

On December 15, Jay Cleaning Co. agreed to provide Kay Co. with bimonthly cleaning services for its offices. The services will be billed to Kay Co. on the fifteenth of each month at a rate of $400. As of December 31, Jay Cleaning has provided its first cleaning of Kay's offices. The adjusting entry for Jay's Cleaning should include a:

Answer 1

Answer:

The entry must be:

Dr Accounts Receivables $200

Cr              Revenue                    $200

Explanation:

The services offered must be recognized as revenue because the consideration on part of Cleaning Co has been delivered, which according to accrual concept must be recognized as revenue. The consideration delivered was for 15 days and for these 15 days the revenue share will be:

Revenue accrued = $400 per month * 15/30 days = $200

Answer 2

Options:

a. credit to Accounting Receivable for $400.

b. debit to Accounts Receivable for $200.

c. debit to Accounts Receivable for $400.

d. credit to Accounts Receivable for $200.

Answer:

B) debit to Accounts Receivable for $200.

Explanation:

Since Jay Cleaning has only performed half a month of cleaning, they can record an accounts receivable for half the months regular bill. The revenue recognition principle allows this, but generally it would be done because it is December 31 and the revenue account needs to be closed. If not, Jay should probably wait until the 15 of the following month before recording the total monthly bill.

The journal entry should be:

December 31, cleaning services performed at Kay Co.

Dr Accounts receivable 200

    Cr Sales revenue 200