A liability created by the receipt of cash from customers in payment for products or services that have not yet been delivered to the customers is:
A) Recorded as a debit to an unearned revenue account.
B) Recorded as a debit to a prepaid expense account.
C) Recorded as a credit to an unearned revenue account.
D) Recorded as a credit to a prepaid expense account.
E) Not recorded in the accounting records until the earnings process is complete.

Question

Quizplus · Accepted Answer

The liability created by the receipt of cash from customers in payment for products or services not yet delivered is recognized as unearned revenue, a liability account. Since the cash inflow represents money to be earned in the future, it should be recorded as a credit to the unearned revenue account.

A Liability Created by the Receipt of Cash from Customers