Question

A company received a $6,500 deposit from a customer for goods to be delivered the following month. Under the accrual and cash basis of accounting respectively, the account credited is a:_____

Answer 1

Under the accrual basis, the account credited is Unearned Revenue (liability), and under the cash basis, it is Revenue, upon receiving a $6,500 deposit from a customer for future goods delivery.

Step-by-step explanation:

When a company received a $6,500 deposit from a customer for goods to be delivered the following month, the accounting treatment differs depending on whether the company is using the accrual or cash basis of accounting. Under the accrual basis of accounting, the account credited would be Unearned Revenue, which is a liability account, because the company has an obligation to deliver goods in the future. Conversely, under the cash basis of accounting, the account credited would be Revenue, as this basis recognizes revenue at the time cash is received, regardless of when the goods or services are actually delivered.

Answer 2

Under accrual accounting, the $6,500 customer deposit is recorded as 'unearned revenue' since the service has yet to be provided, while under cash basis accounting, it is recorded as 'revenue' as the money is already received.

Step-by-step explanation:

Under the accrual accounting method, when a company receives a $6,500 deposit from a customer for goods to be delivered in the future, it records the transaction as a liability, specifically as unearned revenue or deferred revenue. This is because the company has an obligation to deliver goods or services at a later date. The accrual method recognizes income when it is earned, regardless of when the cash is actually received.

On the other hand, under the cash basis accounting, income is recognized when cash is received, irrespective of when the goods or services are delivered. In this case, upon receipt of the $6,500 deposit, the company would credit the account as actual revenue since the cash has been received, even though the goods have not yet been delivered.