If cash is received from customers in payment for products or services that have not yet been delivered to the customers, the business would record the cash receipt as:
A) A debit to a prepaid expense account.
B) A debit to an unearned revenue account.
C) No entry is required at the time of collection.
D) A credit to a prepaid expense account.
E) A credit to an unearned revenue account.

Question

Quizplus · Accepted Answer

The cash received from customers in payment for products or services not yet delivered is considered as unearned revenue, and the business would record it as a credit to the unearned revenue account. This is because the business has an obligation to deliver the products or services in the future, and the receipt of cash at the present represents a liability for the business, which will be earned in the future when the products or services are delivered to the customers.

If Cash Is Received from Customers in Payment for Products