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ABC Catering received $1,120 cash from a customer for catering services to be provided next month. Given the choices below, d
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Answer #1

Answer: 3rd option

As per revenue recognition principle, an item could only be recognized as revenue if its required performance obligation is complete. This is not happening here, since cash is received in advance for a service which will be complete in the next month. Therefore, the cash receipt in this month is unearned revenue. Cash is debit, since it is an asset and increasing; unearned revenue is credit, since it is a liability till the end of catering service.

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