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

Which of the following does NOT apply to unearned revenues?

They represent cash received before services are performed.

They are reported as assets on the balance sheet.

They are recognized as revenue when the related service is performed.

They are initially recorded as liabilities.

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Verified step by step guidance

Understand the concept of unearned revenues: Unearned revenues represent cash received by a company before it has provided the related goods or services. This creates an obligation for the company to either deliver the service or refund the cash, making it a liability.

Review the treatment of unearned revenues on the balance sheet: Unearned revenues are classified as liabilities because they represent obligations to perform services or deliver goods in the future. They are not considered assets, as assets represent resources owned by the company.

Analyze the revenue recognition principle: Unearned revenues are recognized as revenue only when the company fulfills its obligation by performing the service or delivering the goods. This aligns with the accrual basis of accounting.

Evaluate the options provided: Identify which statement does NOT apply to unearned revenues. The statement 'They are reported as assets on the balance sheet' is incorrect because unearned revenues are liabilities, not assets.

Conclude the analysis: The correct answer is the statement that contradicts the nature of unearned revenues, which is 'They are reported as assets on the balance sheet.'