Payments received in advance from a customer for a contract can be__________?
Correct answer: D. Either A or B above
- A. Shown as a deduction from contract work-in-progress on asset side
- B. Shown as a liability
- C. Credited to P&L A/c
- D. Either A or B above
Explanation
An advance received before contract work is performed represents an obligation to provide goods or services, so it may be presented as a liability. In contract accounting, it may also be shown by deducting it from contract work-in-progress, making either A or B acceptable.
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About Financial Statements
Financial statements present a business's financial performance and position through the income statement, statement of financial position, cash flow statement and changes in equity. Questions involve preparing and interpreting these statements, adjusting entries, depreciation, closing inventory, accrued and prepaid items, and distinguishing profit from cash flow.
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