Company A receives $10,000 in advance this month for work to be performed next month.This month,the company should:
A)Debit Inventory $10,000 and credit Sales Revenue $10,000.
B)Debit Cash $10,000 and credit Deferred Revenue $10,000.
C)Debit Inventory $10,000 and credit Accounts Payable $10,000.
D)Debit Accounts Payable $10,000 and credit Cash $10,000.

Question

Quizplus · Accepted Answer

When a company receives payment in advance for services to be provided in the future, it is considered deferred revenue. Therefore, the company should debit the cash account for $10,000 (since they received the money) and credit the deferred revenue account for $10,000 (since they have not yet earned the revenue). Option A is incorrect because inventory is not relevant in this transaction. Option C is incorrect because accounts payable typically represents money owed to suppliers, not money received in advance. Option D is incorrect because accounts payable represents money owed to suppliers, not money received in advance from customers.

Company a Receives $10,000 in Advance This Month for Work