If cash is received from customers in payment for products or services that have not yet been delivered to the customers,the business would record the cash receipt as:
A)A debit to an unearned revenue account and a credit to cash.
B)A debit to a prepaid expense account and a credit to cash.
C)A debit to cash and a credit to an unearned revenue account.
D)A debit to cash and a credit to a prepaid expense account.
E)No entry is required at the time of collection.

Question

Quizplus · Accepted Answer

When cash is received from customers for products or services that have not yet been delivered, it is considered unearned revenue. This is recorded as a liability on the balance sheet until the products or services are delivered, at which point it is recognized as revenue. Therefore, the correct entry would be a debit to cash (an asset) and a credit to an unearned revenue account (a liability). Option C is the only one that reflects this entry.

If Cash Is Received from Customers in Payment for Products