Question
Lakeshore Services recognizes revenue as services are performed; amounts received before performance are credited to Unearned Service Revenue. At January 1, 2025 the Unearned Service Revenue account had a credit balance of $4,500. The following events occurred during 2025.
| Date | Event |
|---|
| February 28 | Completed all of the services owed to customers at January 1 ($4,500). |
| May 1 | Received $18,000 cash for a 12-month service contract beginning May 1. Services are performed evenly over the contract period. |
| August 15 | Received a $6,400 cash advance for a consulting project. By December 31 the project was 75% complete (progress measured on an input basis). |
| October 1 | Billed and collected $5,200 cash for services performed during September. |
| December 31 | Recorded the adjusting entry for the May 1 service contract. |
| December 31 | Recorded the adjusting entry for the August 15 consulting project. |
Instructions:
- Journalize the 2025 transactions and the December 31 adjusting entries.
- Post to the Unearned Service Revenue ledger account (running balance format), starting from the January 1 balance.
Statements in this challenge
- Journal EntriesJournal Entry
- Unearned Service RevenueLedger
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — accrual basis of accounting
Adjusting entries exist to move revenue and expense into the period they belong to, regardless of when cash moved. Every adjusting entry touches at least one income statement account and one balance sheet account — and never the cash account, because the cash has either already moved or has not moved yet.
Common mistakes
- Debiting or crediting Cash in an adjusting entry — a reliable sign the entry is wrong.
- Adjusting for the full amount of a prepayment rather than only the expired portion.
- Missing accrued items entirely because no document prompted them — accrued interest and accrued wages are the usual casualties.
Further readingThe 5 types of adjusting entry