6. A client named Pauline Windsor paid a $4,300 deposit to Speedy Limited for future work scheduled for January 2024. Speedy Limited recorded this deposit as a liability. what is debit? what is credit?
Question
- A client named Pauline Windsor paid a $4,300 deposit to Speedy Limited for future work scheduled for January 2024. Speedy Limited recorded this deposit as a liability. what is debit? what is credit?
Solution
When Pauline Windsor paid a $4,300 deposit to Speedy Limited, the company would record this transaction in their accounting books.
The debit is to the Cash account because the company is receiving money, which increases its cash account.
The credit is to the Unearned Revenue account (a liability account) because the company owes a future obligation (the future work) to Pauline Windsor.
So, in this case:
Debit: Cash (Asset) 4,300
This is because in accounting, the debit entry is always recorded before the credit entry. When a customer pays a deposit for services not yet rendered, it increases the company's cash (an asset account) and also increases its unearned revenue (a liability account). The company has an obligation to perform the future work or return the deposit.
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