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Adjustment : Income Received in Advance Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
FAQs on Adjustment : Income Received in Advance Video Lecture - SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
| 1. What does it mean to have income received in advance? |  |
Ans. Income received in advance refers to the situation where a company receives payment for goods or services before providing them. This creates a liability for the company as they still owe the goods or services to the customer.
| 2. How is income received in advance recorded in the financial statements? | |
Ans. Income received in advance is recorded as a liability on the balance sheet. It is typically classified as a current liability since it is expected to be recognized as revenue within the next accounting period.
| 3. Why is it important to account for income received in advance? | |
Ans. Accounting for income received in advance is important as it ensures accurate financial reporting. By recognizing the liability, companies can avoid overstating their revenue and provide a more realistic picture of their financial position.
| 4. What happens when the goods or services are provided after receiving income in advance? | |
Ans. When the goods or services are provided after receiving income in advance, the liability is reduced, and the corresponding revenue is recognized. This is done by adjusting the previously recorded liability and recording the revenue in the income statement.
| 5. Can income received in advance be refunded to the customer? | |
Ans. Yes, income received in advance can be refunded to the customer if the goods or services are not provided as agreed. In such cases, the liability is reversed, and the refund is recorded as an expense in the income statement. It is important for companies to have proper refund policies and procedures in place to handle such situations efficiently.
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