PRC-1 · Chapter 4 · Question 90 of 100
An entity recorded an advance payment of Rs. 50,000 from a customer by directly crediting 'Sales Revenue'. The goods will be delivered next year. What adjusting entry is required at year-end?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Debit Sales Revenue Rs. 50,000; Credit Unearned Revenue Rs. 50,000
Explanation
Because the revenue was prematurely recognized, it must be reduced (Debit Sales Revenue) and the liability for the undelivered goods must be set up (Credit Unearned Revenue).
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