A Deposit Received by an Entity in Advance of Goods

question 49

Multiple Choice

A deposit received by an entity in advance of goods or services being supplied is initially classified as:

• A) an asset.
• B) a liability.
• C) income.
• D) an expense.

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Definitions:

Like-kind Exchange

A tax-deferred transaction allowing for the exchange of similar types of property without generating a tax liability from the sale.

Involuntary Conversion

An event where property or assets are destroyed, stolen, confiscated, or condemned, forcing the owner to replace them or receive compensation, often with tax implications.

Adjusted Basis

is the original cost of a property adjusted for factors such as depreciation or improvements, used to calculate capital gains or losses.

Non-recognition of Gain

A tax principle that allows taxpayers to defer recognition of capital gains taxes if the gains are reinvested in similar property or under certain qualifying exchanges.