If a company initially records a deferred revenue as a liability, an adjusting entry must be made at the end of the period to increase the revenue account.

Question

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Deferred revenue is initially recorded as a liability because it represents an obligation to deliver goods or services in the future. As the company fulfills this obligation, an adjusting entry is made to decrease the liability and increase the revenue account, reflecting the earned revenue.

If a Company Initially Records a Deferred Revenue as a Liability