A Liability Created by the Receipt of Cash from Customers

question 61

Multiple Choice

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

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Definitions:

Moral-Hazard

A situation where one party engages in risky behavior knowing that it is protected against the risk because another party will bear the cost.

Above-Equilibrium Wages

Wages that are higher than the market equilibrium, often used by employers to reduce turnover or increase productivity.

Firms

Businesses or enterprises engaged in commercial, industrial, or professional activities, aiming to earn profits by providing goods or services.

Adverse Selection

A situation in which one party in a transaction has more information than the other, often leading to an imbalance in a market or poor decision-making outcomes.