accounting question?

Question

Amounts received in advance from customers for future products or services:

A. Are revenues.
B. Increase income.
C. Are liabilities.
D. Are not allowed under GAAP.
E. Require an outlay of cash in the future.

Answer 1

Amounts received in advance from customers for future products or services:

C. Are liabilities.

They're generally termed Unearned Revenue and sit in the current liabilities section of the balance sheet until the product is delivered or the service is rendered, when the amount is transferred to a revenue account.

Answer 2

Depends on what is your accounting method. Cash or accrual? If cash, then A. Revenues, but if in accrual, its C. Liabilities.

In cash basis accounting revenues are simply recognised when cash is received no matter when and how the services were performed or goods delivered. In accrual basis accounting revenues are recognised when they are (1) realised or realizable and (2) earned no matter when cash is received.

But per GAAP, accrual basis is the preferred method so my final answer is C. Liabilities.

Answer 3

The answer is A. If the business is cash basis, income is generally reported in the year that is actually or constructively received.