Which accounts does CBA debit and credit in the adjusting journal entry on December 31?

In preparing adjusting journal entries, the primary goal is to accurately reflect the financial position of the company at the end of an accounting period. In this case, the company has received cash for services or goods that have not yet been fully delivered or performed; hence, these transactions are recorded as unearned revenue, indicating a liability until the service or product is provided.

The correct choice involves debiting Unearned Revenue and crediting Revenue on December 31. This adjustment recognizes that a portion of the previously received unearned revenue has now been earned by providing the necessary service or delivering the product. By debiting Unearned Revenue, the account is decreased, reflecting that the obligation to provide the service is now fulfilled. At the same time, crediting Revenue increases the revenue account, aligning the company’s income statement with the actual earnings for the period.

This entry is essential for accurate financial reporting, ensuring that the balance sheet and income statement reflect the true amount of revenues earned in the reporting period, adhering to the revenue recognition principle.