A company that receives money in advance of performing a service

Question

Quizplus · Accepted Answer

When a company receives money in advance of performing a service, it is considered unearned revenue. Therefore, the company would debit Cash (an asset account) and credit Unearned Revenue (a liability account). Option A is incorrect because it suggests that the company is receiving prepaid fees, which is not a recognized accounting term. Option B is incorrect because Accounts Payable is a liability account used to track money owed by the company to others, not money owed to the company. Option D is incorrect because Accounts Receivable is an asset account used to track money owed to the company by others, not money received in advance.

A Company That Receives Money in Advance of Performing a Service