In February,Ira Roth,Public Accountant,accepted $500 in cash from a customer in exchange for a tax return he promised to prepare in April.Which of the following statements is true?

Question

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Ira received $500 in cash in February, but he has not yet provided the promised service (preparing the tax return). Therefore, he has a liability to the customer in the amount of $500. This liability should be recorded in February as an increase in accounts payable (assuming Ira operates as a sole proprietor or a partnership) or unearned revenue (if Ira operates as a corporation). It is important to record this liability in February instead of waiting until April to accurately reflect the financial position of Ira's business.

In February,Ira Roth,Public Accountant,accepted $500 in Cash from a Customer