A liability created by the receipt of cash from customers in payment for products or services that have not yet been delivered to the customers is:
A) Recorded as a debit to an unearned revenue account.
B) Recorded as a debit to a prepaid expense account.
C) Recorded as a credit to an unearned revenue account.
D) Recorded as a credit to a prepaid expense account.
E) Not recorded in the accounting records.

Question

Quizplus · Accepted Answer

When a company receives cash from customers for products or services that have not yet been delivered, it creates an obligation to deliver the products or services in the future. This obligation is recorded as a liability, specifically as unearned revenue. The liability is recorded as a credit to the unearned revenue account and will be recognized as revenue when the products or services are delivered to the customer. Therefore, the best choice is C - recorded as a credit to an unearned revenue account.

A Liability Created by the Receipt of Cash from Customers