Cash received from a customer before the related service is provided is normally recorded as a:
Correct answer: B. Deferred income liability
- A. Trade receivable
- B. Deferred income liability
- C. Prepaid expense
- D. Accrued income asset
Explanation
The business still owes the customer goods or services, so the receipt creates a liability. Revenue is recognized later as the promised service is performed.
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About Accruals, Prepayments and Provisions
Accruals and prepayments adjust income and expenses to the accounting period in which they are earned or incurred, following the matching principle. Provisions recognise expected obligations or losses when their amount or timing is uncertain, which distinguishes them from ordinary accruals and from general reserves.
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