A customer pays Rs. 48,000 in advance for services that the business will provide next month. How should the receipt be treated at the date of collection?
Correct answer: B. Recognise a contract liability of Rs. 48,000
- A. Recognise revenue of Rs. 48,000
- B. Recognise a contract liability of Rs. 48,000
- C. Recognise an accrued expense of Rs. 48,000
- D. Reduce trade receivables by Rs. 48,000
Explanation
The business has received cash but has not yet earned the revenue. Therefore, the amount is recorded as a contract liability until the service is provided. It is not a receivable because the customer has already paid.
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