South China Sea Airlines is one of the many airlines impacted by the Covid-19 pandemic. In February 2020, Mr & Mrs Zhang paid $9,000 to take their family back to Hong Kong and Macau in July 2020 for a holiday and to visit family.
However, the flight was cancelled and instead of giving a refund to Mr & Mrs Zhang, South China Sea Airlines offered a voucher to take another flight once all airlines were free to fly to destinations outside of Australia.
The Company recorded the transaction in February 2020 as
Debit (DR): Cash $9,000
Credit (CR): Sales Revenue $9,000
Due to the Covid – 19 Restrictions, the correct entry should be.
Group of answer choices
Debit (DR): Sales Revenue $9,000 and Credit (CR): Cash $9,000
Debit (DR): Cash $9,000 and Credit (CR): Sales revenue payable $9,000
Debit (DR): Cash $9,000 and Credit (CR): Sales revenue received in advance $9,000
Debit (DR): Sales revenue received in advance $9,000 and Credit (CR): Cash $9,000
Flag question: Question 16
The correct entry for the transaction due to the Covid-19 restrictions should reflect the fact that the service was not provided and the payment received is essentially an advance that needs to be refunded or offset against future services. Therefore, the correct journal entry would be:
Debit (DR): Sales Revenue Received in Advance $9,000 Credit (CR): Cash $9,000
This entry acknowledges that the sales revenue was received but not yet earned, and it will be offset against the future provision of the service when the voucher is redeemed or refunded.
