Daring Dolls,Inc.received an order to provide SuperDolls for a big department store.The store paid Daring Dolls in advance for the order of SuperDolls.Which of the following describes what will occur when Daring Dolls recognizes revenue?
A)Cash will be increased.
B)Accounts receivable will be increased.
C)Unearned revenue will be decreased.
D)Unearned revenue will be increased.

Question

Quizplus · Accepted Answer

Since Daring Dolls, Inc. received payment in advance for the SuperDolls, the payment is initially recorded as unearned revenue, a liability on the balance sheet. When Daring Dolls recognizes the revenue (upon delivery or completion of the order, according to revenue recognition principles), the unearned revenue will be decreased as it is then recognized as earned revenue.