Illustrate unearned service fees, Accounting Basics

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Q. Illustrate unearned service fees?

Micro Train reports the service income in its income statement for 2010. The company enters the USD 3000 balance in the Unearned Service Fees account as a liability in the balance sheet. In 2011 the company will probable earn the USD 3000 and transfer it to a revenue account. If Micro Train doesn't perform the training services the company would have to refund the money to the training service customers. For example suppose that Micro Train could not perform the remaining USD 3000 of training services and would have to refund the money. After that the company would make the following entry:

285_Illustrate unearned service fees.png

Therefore the company must either perform the training services or refund the fees. This fact must strengthen your understanding that unearned service fees and similar items are liabilities.

Accountants do make the adjusting entries for deferred items for data already recorded in a company's asset and liability accounts. They as well make adjusting entries for accrued items which we discuss in the next segment for business data not yet recorded in the accounting records.


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