An adjusting entry for unearned revenue typically involves recognizing the portion of the revenue that has been earned during the accounting period. This adjustment affects both the balance sheet and the income statement.
1. Debit: Unearned Revenue
- The unearned revenue account is decreased (debited) to reflect the portion of revenue that has been earned during the accounting period and is no longer unearned.
2. Credit: Revenue
- The revenue earned from the unearned revenue needs to be recognized on the income statement. Therefore, a corresponding credit is made to a revenue account to reflect the amount of revenue that has been earned.
This adjustment ensures that the financial statements accurately reflect the revenue earned during the period, aligning with the matching principle in accounting.