Final answer:
The transaction on July 1, 2013, with a debit to cash and a credit to deferred revenue, shows that Company C collected cash from a customer without recognizing revenue, as it likely pertains to an obligation for future services or goods delivery. the correct answer is option (2)
Step-by-step explanation:
The journal entry "Debit Cash $800, Credit Deferred Revenue $800" indicates that Company C received $800 in cash but has not yet recognized revenue. This aligns with the principles of deferred revenue accounting, where cash is received before the corresponding goods or services are delivered. The correct description among the options is:
2. Company C collected $800 from the customer but didn't recognize revenue.
This option accurately captures the essence of the transaction. The debit to cash acknowledges the receipt of $800, reflecting a cash inflow. Simultaneously, the credit to deferred revenue indicates that the company has a liability on its books, representing the obligation to fulfill the service or deliver the goods. Until that obligation is met, revenue recognition is deferred. This scenario is common in industries where advance payments precede the delivery of products or services, such as subscription-based businesses or those with long-term service contracts.