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Answer the following question: On April 1, cash of $2,400 was received from a customer...

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Accounting

Answer the following question:

On April 1, cash of $2,400 was received from a customer for a 12-month service contract.

Prepare the journal entries, assuming the expedient method is used, to record the cash receipt on April 1 and the year-end adjustment as at October 31.

April 1 entry:

Dr Cash $2400

Cr Service Revenue $2400

October 31 entry:

Dr Service Revenue $1000

Cr Deferred Revenue $1000

Why do we do 2400 x (5/12) = $1000 instead of (7/12) when April 1 - October 31 is 7 months? Explain clearly.

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