Answer to Question #244007 in Accounting for nicole

Question

3. Define an Unearned Revenue and discuss why this account is not yet a revenue.

4. If the normal operating cycle is 8 months to August 30, 2023, and the 12 months after the reporting period will jump to the date of December 31, 2023, when is the threshold of

proving that the asset or liability is current? (Pick between August 30, 2023, and

December 31, 2023, only) Explain your position.

Answer 1

Solution:

3.). Unearned Revenue refers to money received for a service or product that has yet to be provided or delivered by an individual or corporation. Because it indicates a debt owing to the consumer, it is reported as a liability on a company's balance sheet.

It is not yet revenue since the service or product has not been delivered to the customer. It is only an advanced payment for services or products to be rendered in the future.

 

4.). The threshold of proving that the asset or liability is current is by checking whether the asset or liability falls within one financial period (normally 1 year). If it is a current asset, it must be an amount that can be collected or converted to cash within 12 months. On the other hand, if it is a liability, it must be an amount due to be paid to creditors within 12 months.

Therefore any amount that can be collected or paid between January 2023 and December 2023, will be deemed current.