BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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Detailed explanation-1: -Under the accrual method of accounting, income that is received in advance is a liability because the company that received the money has not yet earned it and it has an obligation (a liability) to deliver the related goods or services in the future.
Detailed explanation-2: -Income received in advance but not earned will appear in the balance sheet as a liability. Q. concept states that income received in advance should be considered as a liability and not as revenue.
Detailed explanation-3: -The Income Received in Advance A/c appears on the liabilities side of the Balance Sheet. While preparing the Trading and Profit and Loss A/c we need to deduct the amount of income received in advance from that particular income.
Detailed explanation-4: -Advance payments are reported as assets on the balance sheet of the company. When these assets are used, they are spent and reported on the income statement for the period in which they are incurred.