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If the Customer Pays for a Service Before It Has Been Provided? Which of the Following Is True? None of the Answers All of the Answer

Question

If the customer pays for a service before it has been provided? Which of the following is true? None of the answers All of the answer Cash Increase and Revenue Decrease Revenue : increase and Cash Increase Unearned Revenue increase and

Solution

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Answer

The correct answer is **Unearned Revenue increase and Cash Increase**.Here's why:* **Cash Increase:** The customer has paid, so the company's cash balance goes up.* **Unearned Revenue Increase:** Since the service hasn't been provided yet, the company hasn't *earned* the revenue. It's a liability because the company now has an obligation to perform the service. This obligation is tracked as unearned revenue. Once the service is delivered, the unearned revenue will be decreased and actual revenue will be recognized.