Answer: (B) Subtract beginning unearned service revenue.
Explanation: The difference between cash-basis and accrual-basis accounting is the timing of when revenue and expenses are recognised. While cash-basis accounting recognises revenue when actual cash is received or when cash is paid for expenses, accrual-basis accounting recognises revenue when it is earned and when expenses are incurred.
To treat cash receipt from customers on service revenue using accrual-basis accounting, the cash receipt would be warehoused in unearned service revenue account, when the service is rendered or depending on the timing of the service (how long the service takes), the unearned service revenue would be unwound to revenue.
When converting from cash-basis to accrual-basis accounting, the adjustments that should be made to cash receipts from customers to determine accrual-basis service revenue is B. Subtract beginning unearned service revenue.
It should be noted that the difference between cash-basis and accrual-basis accounting is simply about the timing of when the revenue and expenses that are incurred are recognised.
The cash-basis accounting recognize revenue when actual cash is received while the accrual-basis accounting recognises revenue when it is earned and when expenses are incurred. Therefore, the adjustment that should be made is to subtract beginning unearned service revenue.
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