Multiple Choice
Which of the following is an example of a deferral adjusting entry related to unearned revenue?
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3. Accrual Accounting Concepts
Adjusting Entries: Unearned Revenue
Multiple Choice
Unearned fees appear on the:
A
balance sheet as a liability
B
income statement as revenue
C
statement of cash flows as an operating activity
D
balance sheet as an asset
Verified step by step guidance1
Understand the concept of unearned fees: Unearned fees represent money received by a business for services that have not yet been performed. This is considered a liability because the business has an obligation to deliver the service in the future.
Identify the correct financial statement: Unearned fees are reported on the balance sheet, as they represent a liability rather than revenue or an asset.
Clarify why unearned fees are not revenue: Revenue is recognized only when the service is performed or the goods are delivered. Since unearned fees are payments received in advance, they do not qualify as revenue until the service obligation is fulfilled.
Explain why unearned fees are not an asset: Assets represent resources owned by the company that provide future economic benefits. Unearned fees are obligations, not resources, and therefore are classified as liabilities.
Conclude that unearned fees appear on the balance sheet as a liability, reflecting the company's obligation to provide services or goods in the future.
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