At Times, Businesses Require Advance Payments from Customers That Will

question 48

Multiple Choice

At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent:

• A) Liabilities until the product or service is provided.
• B) A component of shareholders' equity.
• C) Long-term assets until the product or service is provided.
• D) Revenue upon receipt of the advance payment.

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Definitions:

Accounting Equation

The fundamental equation representing the relationship between assets, liabilities, and equity (Assets = Liabilities + Equity) in accounting.

Promissory Note

A financial instrument in which one party promises in writing to pay a determinate sum of money to the other.

Monthly Installment

A fixed payment made every month over a set period to repay a debt.

Accounting Equation

The fundamental formula in accounting that represents the relationship between an entity's assets, liabilities, and equity (Assets = Liabilities + Equity).