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

Question

Quizplus · Accepted Answer

When a company receives cash from customers for products or services that have not yet been delivered, it creates a liability known as unearned revenue. This is because the company now has an obligation to deliver the products or services in the future. Unearned revenue is recorded as a credit to the unearned revenue account, which is a liability account. Therefore, the correct answer is (C) recorded as a credit to an unearned revenue account.

A Liability Created by the Receipt of Cash from Customers