Question

When a magazine company collects cash for selling a subscription, it is an example of:  

Group of answer choices

An unearned revenue transaction.

An accrued liability transaction.

A prepaid expense transaction.

An accrued receivable transaction.

Answer 1

Answer: 1^st option; unearned revenue transaction

Magazine companies collect cash in advance for their upcoming magazine publication. Such advance receiving cannot be treated as revenue earned, since its required performance obligation is not complete yet. Therefore, the advance cash amount would be a deferred revenue and should be treated as unearned revenue.

Other options are not correct:

2^nd option: unearned revenue is a liability but it is not an accrued liability.

3^rd option: this is not an expense of the company.

4^th option: this is irrelevant here.