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When a customer pays in advance for a service the business has not yet performed, which account is credited at the time the cash is received?
AUnearned Fees, a liability account
BFees Earned, a revenue account
CAccounts Receivable, an asset account
DRetained Earnings, an equity account
Answer & Solution
Correct answer: A. Unearned Fees, a liability account
1. Cash is received before the work is done, so revenue cannot yet be recognised.
2. The business owes service, so it credits the liability Unearned Fees, making A correct.
3. Fees Earned (B) cannot be credited because nothing is earned yet.
4. No receivable arises since cash was received (C), and equity is not credited directly (D).
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §2.4.1 "Deferred Revenue", p.75_