Why are payments received from customers in advance, for either services to be performed and/or for goods to be delivered, classified as liabilities upon the receipt of the funds?
Why are payments received from customers in advance, for either services to be performed and/or for goods to be delivered, classified as liabilities upon the receipt of the funds?
College Accounting, Chapters 1-27
23rd Edition
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:HEINTZ, James A.
Chapter14: Adjustments For A Merchandising Business
Section: Chapter Questions
Problem 3TF: The cash received in advance before delivering a product or performing a service is called unearned...
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Why are payments received from customers in advance, for either services to be performed and/or for goods to be delivered, classified as liabilities upon the receipt of the funds?
Expert Solution
Step 1 Introduction
Advance payment received from the customer there are two reasons which are mentioned are as follows:
1) Earned revenue: When the payment of goods and services that has been delivered partially or completely to the customer.
2) Unearned revenue: When the payments for goods and services that will be delivered and invoiced at a future date.
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