Question

MC174 discussion, 1 point, due 2/3 Refer to Chapter I multiple-choice question 4 below. [4] According to the FASB's conceptual framework, an entity's revenue may result from a(n) A. Decrease in an asset from primary operations. B. Increase in an asset from incidental transactions. C. Increase in a liability from incidental transactions. D. Decrease in a liability from primary operations. The correct answer is D. A. A decrease in an asset from primary operations results in an expense. B. An increase in an asset from incidental transactions results in a gain. C. An increase in a liability from incidental transactions results in a loss. D. Revenues are inflows or other enhancements of assets or settlements of liabilities from activities that constitute the entity's ongoing major or central operations. Thus, a revenue may result from a decrease in a liability from primary operations, for example, by delivering goods that were paid for in advance. 1. Please give an example of how an entity's revenue may result from a decrease in liability from primary operations. 2. Please provide the journal entry based on the example you described. Hint: it is an adjusting entry
plz help me w this Asap

Answer 1

1. okay, lets try to understand it this way. Customer A gives you you 100 $ is advance and says that he will buy goods from you after a few days. At this point of time, you record a liability for 100$ . Now after a few days, when customer A comes and buys goods from you, then you clear the liability as now you have made a sales for 100$ to customer A.

2. Journal entries shall be as follows:

Recording liability when customer A gives you advance:

Cash A/c Dr. $100

To Advance received A/c (liability) $100

Recording revenue when you make sale to customer A:

Advance received A/c (liability) Dr. $100

To Sales A/c (revenue) $100