Question

On January 1, Health Magazine receives advance cash payment from forty customers for magazine subscription services. Weight Control had yet to provide subscription services as of January 1. What is the status of the subscription services provided by Weight Control as of January 1?

1) The subscription services have not been provided yet
2) The subscription services have been provided to all customers
3) The subscription services have been provided to some customers
4) Cannot be determined

Answer 1

As of January 1, Health Magazine's received advance payments for subscription services from Weight Control, which have not been provided yet, making option 1 the correct choice.

Step-by-step explanation:

The question refers to a scenario where Health Magazine receives advance payment for subscription services from forty customers on January 1. However, as of that date, the subscription services by Weight Control have not yet commenced. Therefore, the correct answer to this question is: 1) The subscription services have not been provided yet.

This situation is typical in many businesses where services or goods are paid for in advance, such as magazine subscriptions, but the actual delivery or fulfillment of the service takes place over the span of the subscription period.

From an accounting perspective, this receipt of cash before services are provided introduces a concept known as deferred revenue or unearned revenue. This is a liability on the company's balance sheet because it represents an obligation to deliver products or services in the future. Over time, as Weight Control provides the subscription services, this liability will be reduced, and the revenue will be recognized in the income statement.