Asked by Andrew Cavender on Apr 28, 2024
Verified
Daring Dolls,Inc.received an order to provide SuperDolls for a big department store.The store paid Daring Dolls in advance for the order of SuperDolls.Which of the following describes what will occur when Daring Dolls recognizes revenue?
A) Cash will be increased.
B) Accounts receivable will be increased.
C) Unearned revenue will be decreased.
D) Unearned revenue will be increased.
Unearned Revenue
Income received by a business for goods or services yet to be provided; considered a liability until the service or product is delivered.
Recognizes Revenue
The process of recording revenue in the financial statements when it is earned and realizable, following the accrual accounting principle.
- Discern the accurate method to treat prepaid expenses and unearned revenues in accounting transactions.
Verified Answer
QC
Queen CharlesMay 03, 2024
Final Answer :
C
Explanation :
Since Daring Dolls, Inc. received payment in advance for the SuperDolls, the payment is initially recorded as unearned revenue, a liability on the balance sheet. When Daring Dolls recognizes the revenue (upon delivery or completion of the order, according to revenue recognition principles), the unearned revenue will be decreased as it is then recognized as earned revenue.
Learning Objectives
- Discern the accurate method to treat prepaid expenses and unearned revenues in accounting transactions.
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