Question

A company receives a $50,000 cash deposit from a customer on October 15 but will not provide services until November 20. Which of the following statements is true?
a. The company records cash collection on November 20.
b. The company records service revenue on October 15.
c. The company records nothing on October 15.
d. The company records deferred revenue on October 15.

Answer 1

Answer:

d. The company records deferred revenue on October 15.

Explanation:

The company must recognize cash collection for 50,000 because the cash is actually in its possession. It will do so against a liability called Deferred Revenues.

So the accountable record will be: Cash debit for 50,000 and Deferred Revenues credit for 50,000.