A customer pays us in advance and the unearned revenue is recorded as a liability. When can we record the revenue?

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A customer pays us in advance and the unearned revenue is recorded as a liability. When can we record the revenue?

a) when it is earned

b) when it is realized or realizable

c) Both (a) and (b)

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Answer:

  1. a) when it is earned

Explanation to the answer:

Unearned amount wil be recorded in the liability account as Deferred Revenues,, Unearned Revenues, or the Customer Deposits. After such amount had  earned, such liability account will be reduced and the revenue account will be increased.

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