Multiple Choice
The difficulty in calculating a tax is typically in the determination of:
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3. Accrual Accounting Concepts
Revenue Recognition and Expense Recognition
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Deferred revenue is reported on the balance sheet as a current:
A
expense
B
asset
C
revenue
D
liability
Verified step by step guidance1
Understand the concept of deferred revenue: Deferred revenue refers to money received by a company for goods or services that have not yet been delivered or performed. It represents an obligation to provide goods or services in the future.
Recognize the classification of deferred revenue: Since the company owes goods or services to the customer, deferred revenue is considered a liability until the obligation is fulfilled.
Determine the type of liability: Deferred revenue is typically classified as a current liability because the obligation is expected to be settled within the company's operating cycle or within one year.
Locate deferred revenue on the balance sheet: On the balance sheet, deferred revenue is reported under the 'Current Liabilities' section, along with other short-term obligations.
Review the options provided: Compare the options (expense, asset, revenue, liability) and identify that 'liability' is the correct classification for deferred revenue.
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