Crane, Inc. is a retailer of home appliances and offers a service contract on each appliance sold. Crane sells appliances on installment contracts, but all service contracts must be paid in full at the time of sale. Collections received for service contracts should be recorded as an increase in a

Question

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Collections received for service contracts should be recorded as an increase in a deferred revenue account because the revenue has not yet been earned and is therefore considered a liability until the services are actually provided.