Under accrual accounting, how is an advance cash payment received from a customer for services to be delivered next year classified on the balance sheet?
APrepaid Expense (Asset)
BUnearned Revenue (Current Liability)
CRevenue (Income Statement)
DRetained Earnings (Equity)
Explanation
* Advance customer payments create a performance obligation, recorded as Unearned (Deferred) Revenue under Current Liabilities.
* Revenue is recognized in Income Statement only when performance obligations are fulfilled.
Exam Relevance
- Topic: Financial Accounting
- Subtopic: Accrual & Deferral Accounting
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