Receiving cash from customers before services are performed results in:

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Consider the scenario described: cash is received from customers before the related services are performed. This timing affects how the transaction is categorized in accounting.
Option 1: Prepaid Assets. While this account is used when cash is paid in advance for goods or services, the key distinction here is who pays and when. Receiving cash from customers creates a liability for future performance, not an asset that the company has prepaid for itself. So this option mislabels the nature of the transaction.
Option 2: Service Revenue. Revenue is recognized when the service is performed or the performance obligation is satisfied, not simply when cash is received in advance. Recording revenue at the time of cash receipt would overstate earnings before the service is delivered, which violates the revenue recognition principle. Therefore this choice is incorrect.
Option 3: Deferred Revenues. This option correctly captures the liability created by receiving cash before fulfilling the service. The company owes the customer the service or goods promised, so the cash is recorded as a liability called Deferred Revenues (or Unearned Revenue) until the performance obligation is satisfied.
Option 4: Accounts Receivable. Accounts Receivable represents amounts billed to customers for services already performed or goods delivered but not yet collected in cash. Receiving cash before performing services does not create an receivable; instead, it creates a liability to perform in the future. Hence this option is not appropriate for this situation.
In summary, the core idea is that the advance cash creates a liability rather than revenue or an asset, until the service is delivered. This aligns with the concept of recognizing deferred revenues as a liability until performance occurs.

25/SP-ACC-220-1M3, ACC-220-103 Chapter Two Quiz

Receiving cash from customers before services are performed results in:

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25/SP-ACC-220-1M3, ACC-220-103 Chapter Two Quiz

Receiving cash from customers before services are performed results in:

查看解析

登录即可查看完整答案

类似问题

True North Real Estate Management forgot to adjust its Deferred Rent Revenue account for the​ $15,000 that had been earned during the current year. What effect does this omission have on the current year financial​ statements?

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A product has a selling price of $20, a contribution margin ratio of 40% and fixed cost of $120,000. To make a profit of $30,000. The number of units that must be sold is: Type the number without $ and a comma. Eg: 20000

更多留学生实用工具

希望你的学习变得更简单

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