Cash received prior to the providing of the goods or service results in an increase in both assets and liabilities.

Question

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If cash is received before providing goods or services, it is considered a form of prepayment or advance payment. This results in an increase in assets (cash) and liabilities (unearned revenue or deferred revenue) because the company has a responsibility to deliver the goods or service at a later point in time. Once the goods or service have been provided, the liability is decreased and revenue is recognized.

Cash Received Prior to the Providing of the Goods or Service