When a down payment is received, the deposit from purchaser account used under the deferral method is reported on the balance sheet of the seller as a(n)
A) revenue
B) liability
C) asset
D) contra asset

Question

Quizplus · Accepted Answer

When a down payment is received, the deposit from purchaser account is initially recorded as a liability in the balance sheet of the seller. This is because the seller has not yet fulfilled its obligation under the contract, so the deposit represents an obligation to the purchaser. As the contract is fulfilled and revenue is earned, the liability is gradually reduced, and the revenue is recognized in the income statement. Therefore, the correct answer is B) liability.

When a Down Payment Is Received, the Deposit from Purchaser