BellTower Company collected $1

When the company follows the accrual system of accounting therevenue and expenses recorded in the accounts i.e income statementor balancesheet are the transaction which has actually earned orincurred the unearned and prepaid amount are deferred accordinglyin the balancesheet as liabilities or asssets depending upon thenature of transaction.

Here in the given case, Belltower company has received inadvance $ 13,000 in June for which the services to be provided fromOctober to April of next year.

Now, when the advance is received for which no services havebeen provided is not directly treated as revenue but it istransferred to balancesheet liabilities as unearned revenueservice, which will be reversed at the year end to the extent ofservice actually performed. Here the unearned revenue nature is ofliabilities as the performance obligation arises once the advanceis received.

The effect on the balancesheet being increase in assets as cashcomes in the business and a corresponding increase in liabilitiesas the unearned service revenue obligation arises at the same timewhich is to be fulfilled in future period. Thus the impact onbalancesheet being an increase in assets with a correspondingincrease in liabilities. No effect will be in income statement asof june 2019.