Question

An alternative approach to recording unearned revenue would be to ______ when cash is collected from a customer in advance of providing goods and services.

a)debit rent payable
b)debit sales revenue
c)credit rent expense
d)credit sales revenue

Answer 1

The correct approach to recording cash received in advance of providing goods or services would be to credit unearned revenue and debit cash. You credit sales revenue only after the goods or services have been provided.The correct option is d.

Step-by-step explanation:

The question is asking for the correct accounting entry when cash is received in advance for goods or services that have not yet been provided. The correct entry would be to credit unearned revenue or a liability account since the company owes the service or product to the customer. When the cash is received, you would debit cash because the company's cash balance is increasing.

The option to credit sales revenue only applies when the goods or services have actually been provided and earned. The correct approach is to recognize the payment as a liability (unearned revenue) until the transaction is complete, which mirrors the economic reality that the company owes something to the customer.