It is acceptable to record cash received in advance of providing products or services to revenue accounts if an adjusting entry is made at the end of the period to bring the liability account balance to the correct unearned amount.

Question

Quizplus · Accepted Answer

Recording cash received in advance as revenue is only acceptable if a liability account (such as "Unearned Revenue") is also recorded to reflect the obligation to deliver products or services at a later time. At the end of the period, an adjusting entry must be made to reduce the liability account to the correct unearned amount and recognize the revenue earned during the period. This process ensures that the financial statements accurately reflect the company's performance and financial position.

It Is Acceptable to Record Cash Received in Advance of Providing