On October 1, a client pays a company the full $12,000 balance of a year long contract. Using the Accrual method

Question:- 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?

Answer

Under accrual method, the entire $12,000 would have classified as an unearned revenue since on October 1st of that year; a client pays this amount in full. Unearned revenue is the account where a payment which has been received by an organization about not for delivering or performing any good and also services. As of the December 31, the contract is only three months old. Hence, the company has so far made only 3 out of the twelve parts or $3000 in terms of the progress from the initial payment. The $12,000-$3, 000=$9 000 would be an earned revenue on December 31 as it is the three-quarter of the nine months remaining until the completion of the contract. This balance of the unearned revenue signifies the residual prepaid amount that is still owed by the company with regards to the future goods or services due at a later date . If accrual accounting, which associates revenue with the delivery were in use here the unearned revenue balance as of December 31 for this one year $12000 contract collected at once would be indicated to amount to $9000.