Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Adjusting Entries: Unearned Revenue

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Unearned Revenue

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Multiple Choice

Why must amounts received in advance from customers be deferred in the accounting records?

Because it is required to match expenses with revenues in the same period, even if the service has not been performed.

Because the revenue has not yet been earned and should be recognized only when the related goods or services are provided.

Because all cash received must be immediately recorded as revenue, regardless of when the service is performed.

Because deferring revenue increases net income in the current period.

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Verified step by step guidance

Understand the concept of revenue recognition: Revenue should only be recognized when it is earned, meaning the goods or services have been provided to the customer.

Identify the principle of matching expenses with revenues: This principle ensures that revenues and related expenses are recorded in the same accounting period to accurately reflect financial performance.

Recognize the role of unearned revenue: Amounts received in advance from customers are considered liabilities (unearned revenue) because the company has an obligation to deliver goods or services in the future.

Record the advance payment correctly: When cash is received in advance, it should be recorded as a liability under 'Unearned Revenue' or 'Deferred Revenue' on the balance sheet, not as revenue on the income statement.

Adjust the accounting records when the service is performed: Once the goods or services are provided, the liability is reduced, and the revenue is recognized in the income statement, ensuring compliance with the revenue recognition principle.