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How do we record a cash prepayment from a customer in the financial statement?

How do we record a cash prepayment from a customer in the financial statement?

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Answer #1

The Answer is Unearned Revenue, It is Recorded as a Liability in Balance Sheet and Reported under Operating Activity in Cash Flow Statement as Cash Inflow.

Explanation:

1) If a customer prepayment the amount, which means customer paid for future sales or service.

2) It is revenue for organization but it is not yet earned by the organization even it is received. So, It is Unearned Revenue.

3) Unearned Revenue is a liability as it is not yet earned by the organization.

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