Question

A customer pays in advance for services to be performed in a future period. In which account should the transaction be recorded?

Answer 1

When a customer pays in advance for services, the transaction should be recorded in a liability account called Unearned Revenue.

Step-by-step explanation:

When a customer pays in advance for services to be performed in a future period, the transaction should be recorded in a liability account called Unearned Revenue. This account represents the company's obligation to provide the services at a later date.

For example, if a customer pays for a subscription to a magazine for the next year, the payment received should be recorded as a liability in the Unearned Revenue account until the company delivers the magazines over the course of the year.