A Liability Created by the Receipt of Cash from Customers

question 85

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 until the earnings process is complete.

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Definitions:

Common Stock Dividends Distributable

An amount that has been declared by a corporation to be distributed to its common stockholders as dividends but has not yet been paid.

Paid-in Capital

The amount of money raised by a company through the issuance of securities to investors, reflecting the capital provided by shareholders in exchange for stock.

Market Value

The current price at which an asset or service can be bought or sold in the marketplace.

Paid-in Capital

The amount of capital "paid in" by investors during common or preferred stock issuances, including the par value of the shares and amounts over par value.