Question

When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in

A. a current liability
B. shareholders equity
C. paid-in capital
D. revenue

Answer 1

• The correct answer is Option ‘A’: When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in a CURRENT LIABILITY.
• This is because that amount is Refundable, that is, it is to be returned to the customer.
• It cannot be considered as a shareholder’s Equity or paid in capital because its not part of stock of company and it is received from customers, not owners.
• It is also not a revenue, since the same is to be refunded back to customer.