Uptown Theatre has customers who prepay a total of $1,000 for season tickets to attend five upcoming shows. Uptown Dinner Theatre collects the $1,000 in advance before the shows are performed.
After three shows are performed, what should Uptown Theatre report on its income statement assuming it used the accrual basis accounting method?
Service Revenue of $600
Each show earns $200 of Service Revenue ($1,000 / 5 shows = $200 per show). Three shows have been performed so $600 has been earned as Service Revenue ($200 * 3 shows = $600). Therefore, $600 is earned and Service Revenue is on the income statement. Cash is not on the Income Statement, but rather the Balance Sheet. The $1,000 of cash that is received is recorded on the balance sheet as Unearned Service Revenue when received. As the revenue is earned, this account is debited and Service Revenue is credited.