In the context of journal entries, what does the written listing agreement between the broker and the seller create from an accounting perspective?

• A. An expense for the seller
• B. Revenue for the seller
• C. A liability for the broker
• D. A receivable (asset) for the broker

Answer: (D)

Verified step by step guidance

1. Understand the nature of the written listing agreement: It is a contract between the broker and the seller, where the broker agrees to provide services (e.g., selling the property) in exchange for compensation.
2. From an accounting perspective, analyze the broker's position: The broker has performed or agreed to perform services, which creates a right to receive payment. This right is classified as a receivable (an asset).
3. Consider the seller's perspective: The seller does not immediately incur an expense or generate revenue simply by signing the agreement. The seller's obligation to pay arises only after the broker fulfills their part of the agreement.
4. Evaluate why the agreement creates a receivable for the broker: The broker's right to payment is an asset because it represents future economic benefits that the broker expects to receive as a result of the agreement.
5. Conclude that the correct accounting treatment for the broker is to record the receivable (asset) once the agreement is signed and services are performed, aligning with the accrual basis of accounting.