Which of the following is an example of a liability?PrepaymentsAccumulated depreciationAllowance for doubtful debtsRevenue received in advance
Question
Which of the following is an example of a liability?PrepaymentsAccumulated depreciationAllowance for doubtful debtsRevenue received in advance
Solution
Among the options provided, the example of a liability is:
- Revenue received in advance.
Revenue received in advance, also known as deferred revenue or unearned revenue, is a liability because it represents money received by a company for goods or services that it has not yet delivered or performed. The company has an obligation to provide these goods or services in the future, hence it is a liability.
Here's why the other options are not liabilities:
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Prepayments: These are assets, not liabilities. They represent payments made in advance for expenses that will be incurred in the future.
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Accumulated depreciation: This is a contra asset account, not a liability. It represents the total depreciation that has been taken on an asset since it was acquired.
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Allowance for doubtful debts: This is also a contra asset account, not a liability. It represents the amount of a company's receivables that it does not expect to be able to collect.
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