Answer to Question #250141 in Accounting for Arkan

Question

A customer has paid the firm, in advance, for merchandise the firm will deliver next month. Why
is the firm not permitted to recognize revenue when it receives the cash?

Answer 1

When a customer pays for goods or services before receiving them, the business records the money as unearned revenue. Unearned income, often known as "advance payments" or "delayed revenue," is mostly employed in accrual accounting.