Unearned fees appears on the:
A. Adjusted trial balance debit column and income statement credit column of a worksheet
B. Adjusted trial balance debit column and balance sheet credit column of a worksheet
C. Balance sheet credit column and adjusted trial balance credit column of a worksheet
D. Does not appear on a worksheet
The correct answer and explanation is :
Correct Answer: C. Balance sheet credit column and adjusted trial balance credit column of a worksheet
Explanation:
Unearned fees, also known as unearned revenue or deferred revenue, represent money received by a business before services are rendered or goods are delivered. This is a liability because the business still owes a service or product to the customer. It is not considered revenue until it is earned.
Understanding the Worksheet Columns:
A typical accounting worksheet includes several columns:
- Trial Balance – Shows the balances of all accounts before adjustments.
- Adjustments – Includes journal entries needed to adjust accounts.
- Adjusted Trial Balance – Combines the trial balance and adjustments.
- Income Statement Columns – Lists revenue and expense accounts.
- Balance Sheet Columns – Lists asset, liability, and equity accounts.
Why Option C is Correct:
- Adjusted Trial Balance Credit Column:
- Unearned fees appear here because they are still liabilities after adjustments unless part of it has been earned and adjusted into revenue.
- It remains a credit because liabilities have credit balances.
- Balance Sheet Credit Column:
- Unearned fees are a liability, which is part of the balance sheet.
- Therefore, it shows up in the balance sheet section of the worksheet under the credit column, maintaining its credit nature.
Why the Other Options Are Incorrect:
- Option A: Incorrect because unearned fees are not part of the income statement (they are not revenue until earned).
- Option B: Incorrect because the debit column is wrong; unearned fees are a liability with a credit balance.
- Option D: Incorrect because unearned fees do appear on the worksheet, especially in the adjusted trial balance and balance sheet.
In summary, unearned fees are a liability and will appear in both the adjusted trial balance credit column and the balance sheet credit column. These placements reflect their role as obligations to provide future services or products.