Question

cash is received before goods are delivered or services are performed. When the cash is received, Cash is debited and Unearned Revenue is credited. When the goods are delivered or services are performed, then Unearned Revenue is debited and Revenue is credited.

Answer 1

Unearned revenue is recorded as a liability when cash is received before services are provided or goods delivered, which changes to revenue upon delivery or service completion.

Step-by-step explanation:

The scenario described involves an accounting concept known as unearned revenue, which is recognized when a company receives payment for services or goods that have not yet been delivered or performed. Under the accrual accounting method, it's recorded as a liability on the balance sheet.

When the customer initially pays for the goods or services, the journal entry to record the transaction debits (increases) Cash and credits (increases) Unearned Revenue. Later, once the goods are delivered or services are performed, the company must then adjust its accounts to recognize the earned revenue.

This is done by debiting (decreasing) Unearned Revenue and crediting (increasing) Revenue. This reflects the fulfillment of the obligation and the earning of the revenue.