Receiving cash in advance of performing a service creates a liability for the company.

Name: Receiving cash in advance of performing a service creates a liability for the company.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

Receiving cash in advance creates a liability because the service has not yet been performed, and the company is obligated to provide the service in the future. The unearned revenue is recorded as a liability on the balance sheet until the service is provided.

Receiving Cash in Advance of Performing a Service Creates a Liability