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)Deferred revenue will be decreased.
D)Deferred revenue will be increaseD.When promised goods are delivered, and cash has already been received, a liability account, Deferred Revenue, is decreased, and the account Sales Revenue is increased.

Question

Quizplus · Accepted Answer

When Daring Dolls recognizes revenue for the SuperDolls, it means they have fulfilled their obligation to provide the promised goods. As they have already received payment in advance, they will decrease the liability account of Deferred Revenue. Therefore, option C is the correct choice. Option A, cash will not increase as they have already received payment in advance. Option B, accounts receivable will not increase as the department store has already paid in advance. Option D, deferred revenue will not increase as it is a liability account which will decrease when revenue is recognized.