Question

It is acceptable to record cash received in advance of providing products or services to revenue accounts if an adjusting entry is made at the end of the period to bring the liability account balance to the correct unearned amount. TRUE OR FALSE

Answer 1

The statement is True .

There are two approaches to adjust the unearned revenue :

1)Is to recognize the cash received as revenue at the time of receipt and later at the end of period adjust the unearned amount to appropriate liability account .

2)Is to recognize the entire amount as unearned revenue at the time of receipt and later receognize the amount as and when earned .

Since the overall effect under both the approaches are same ,it is acceptable to record cash received in advance of providing products or services to revenue accounts if an adjusting entry is made at the end of the period to bring the liability account balance to the correct unearned amount.