Why are payments received from customers in advance, for either services to be performed and/or for goods to be delivered, classified as liabilities upon the receipt of the funds?
Why are payments received from customers in advance, for either services to be performed and/or for goods to be delivered, classified as liabilities upon the receipt of the funds?
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter8: Current And Contingent Liabilities
Section: Chapter Questions
Problem 14DQ
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Why are payments received from customers in advance, for either services to be performed and/or for goods to be delivered, classified as liabilities upon the receipt of the funds?
Expert Solution
Step 1 Introduction
Advance payment received from the customer there are two reasons which are mentioned are as follows:
1) Earned revenue: When the payment of goods and services that has been delivered partially or completely to the customer.
2) Unearned revenue: When the payments for goods and services that will be delivered and invoiced at a future date.
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