Question

Upon receipt of cash in advance from a customer, a company records revenue on the income statement. (True/False)

Answer 1

Upon the receipt of cash in advance from a customer, a comapnay will debit cash account and credit unearned revenue account for the respective amount. This unearned revenue is the advance recieved for the service not rendered, so it will be treated as current liability, that is the service should be rendered from the part of the company. It will not be recorded on the income statement and it will be shown on the balance sheet. The comapany charged revenue to income statement when it is earned, that is when the obligation from the part of the company is fullfilled.

So the statement is False. Upon the receipt of cash in advance from a customer, a company will not record revenue on the income statement.