Question

Growler Commercial Cleaning Company collects $1,000 deposit associated with the rental of industrialcleaning equipment. The deposit is refundable upon return of the equipment. When the customerreturns the cleaning equipment, Growler should debit the liability – refundable deposits.

Answer 1

Answer: (d) liability - refundable deposits.

Explanation:

The refundable deposit of $1,000 was a liability because Growler owed it to the customer and were simply holding it for when the customer returned the equipment.

Upon receipt of the deposit, they credited the Refundable deposits accounts which is a liability account. Now that the customer has returned the cleaning equipment and the deposit is to be refunded to the customer, Growler should now debit the Refundable deposits account to cancel out the liability.