The adjustment to be made for income received in advance is:
A)Add income received in advance to respective income and show it as a liability
B)Deduct income received in advance from respective income and show it as a liability
C)Add income received in advance to respective income and show it as asset
D)Deduct income received in advance from respective income and show it as an asset in the Balance Sheet

Question

Quizplus · Accepted Answer

Income received in advance is not earned in the current accounting period, so it should be deducted from the respective income account to reflect the true income earned. It is shown as a liability because it represents an obligation to provide goods or services in the future.

The Adjustment to Be Made for Income Received in Advance