A Liability Created by the Receipt of Cash from Customers

question 68

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 credit to a prepaid expense account.
• B)Recorded as a credit to an unearned revenue account.
• C)Recorded as a debit to a prepaid expense account.
• D)Recorded as a debit to an unearned revenue account.
• E)Not recorded in the accounting records.

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Definitions:

Underapplied Overhead

A situation where the allocated factory overhead costs are less than the actual overhead costs incurred, leading to a discrepancy in cost accounting.

Direct Materials

The raw materials that are directly traceable and a necessary part of a finished product.

Indirect Materials

Materials used in the production process that are not directly traceable to a finished product, such as lubricants for machinery.

Work in Process Inventory

The inventory account that tracks the costs associated with incomplete products in a manufacturing process.