Question

a company received $5,000 for 100 one - year subscriptions on july 1. the journal entry to record the cash received would include a ______. the company uses a liability account for amounts received in advance.

a. debit to note payable for $5,000
b. credit to unearned revenue for $5,000
c. credit to accounts payable for $5,000
d. debit to prepaid expense for $5,000

Explanation:

The company received cash for 100 one - year subscriptions. Since the revenue is not yet earned (the subscriptions are for the future), we use the liability account "Unearned Revenue". When cash is received, we debit Cash (not relevant to the options here) and credit Unearned Revenue. Option A: Debiting Unearned Revenue is incorrect as we are receiving cash and creating a liability, so we should credit Unearned Revenue. Option B: Crediting Unearned Revenue for $5,000 is correct as the cash received for unearned subscriptions is a liability. Option C: Accounts Payable is for amounts owed, not received, so this is incorrect. Option D: Prepaid Expenses are for expenses paid in advance, not related to revenue received, so this is incorrect.

Answer:

B. credit to Unearned Revenue for $5,000