Yelena Company received cash from a customer in advance of providing the service to the customer.Which of the following does not accurately describe the impact on the financial statements when Yelena later provides the service?
A)Liabilities are decreased.
B)Operating income increases.
C)Retained earnings increases.
D)Assets are increased.

Question

Quizplus · Accepted Answer

When Yelena Company provides the service, it recognizes revenue, which decreases liabilities (unearned revenue) and increases operating income and retained earnings. However, assets do not increase because the cash was received earlier, not at the time of service provision.

Yelena Company Received Cash from a Customer in Advance of Providing