Question

At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent (Points : 4) liabilities until the product or service is provided. a component of shareholders' equity. long-term assets until the product or service is provided. revenue upon receipt of the advance payment.

Answer 1

Answer:

Liabilities until the product or service is provided

Explanation:

The accrual principle of accounting implies that cash received in advance will be treated as liability until its earned in form of cash

Accounting treatment of advance payments is: Cash Dr and Liability Cr

The cash received from customer in advance would not be treated as revenue until the goods are delivered or services are rendered to the customer.

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