A Company received a $10,000 deposit from a customer for goods to be delivered the following month. Under the accrual and cash basis of accounting respectively the deposit would be recorded as
A) Accrual Basis: a liability | Cash Basis: a liability
B) Accrual Basis: a liability | Cash Basis: income
C) Accrual Basis: income | Cash Basis: a liability
D) Accrual Basis: income | Cash Basis: income
E) Accrual Basis: an asset | Cash Basis: an asset

Question

Quizplus · Accepted Answer

- Under accrual basis accounting, the deposit would be recorded as a liability because the company has not yet delivered the goods for which the customer has paid. This is because accrual basis accounting recognizes revenues and expenses when they are earned/incurred, regardless of when cash is received/paid. 
- Under cash basis accounting, the deposit would be recorded as income because cash has been received by the company. This is because cash basis accounting recognizes revenues and expenses when cash is received/paid, regardless of when they are actually earned/incurred. Therefore, the best choice is B.

A Company Received a $10,000 Deposit from a Customer for Goods