Which of the following is a liability account

50) Which of the following is a liability account? A) Unearned Revenue C) Service Revenue B) Accounts Receivable D) Building

Answer

General guidance

Concepts and reason

Liability: It is an obligation of any business. The amount borrowed by business from an outsider of the business is called liabilities. Creditors and owners are two groups who have claims to a company’s assets in lieu of the credit provided by them to the business. It is also defined as future sacrifices of economic benefits.

Assets: It can be defined as the resources owned by the organization which is capable of providing some future benefits. On the basis of duration of time assets are of two types which are current assets and fixed assets.

Fundamentals

Unearned Revenue: It is the part of the total revenue that cannot be recorded until goods or services are provided. It is a liability that shows amount received in advance for providing goods or services on the future date

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Account Receivable: The term accounts receivable can be defined as the amount of money that a business has yet not received from its clients. When a business provides any service or product on credit for which payment is due but yet not received, the cash due to the business becomes an account receivable. Accounts receivable is a major aspect of cash flow. It shows how business is making its sales.

Service Revenue: It is the revenue that is generated on the giving or performing services for the customer. It does not include any payment made in advance for which the services are to be performed in the future.

Step-by-step

Step 1 of 2

Accounts Receivable is an incorrect option because it is an asset account.

Service Revenue is an incorrect option because it is an income and not a liability.

The building is an incorrect option because it is a fixed asset and not a liability.

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Accounts receivable is not a liability account instead it is shown as an asset in the balance sheet. The goods/services provided on credit to customers are recorded as accounts receivable.

Accounts receivable also known as debtors is recorded as an asset since the customer is obliged to pay the debt to the company.

Service revenue is not a liability. It is reported on the top of the income statement. Service revenue is the income generated by a business from its core activities. Service revenue generally increases the retained earnings of the company.

The building is not a liability account instead it is an asset account. The building is an asset held by the business which benefits its current as well as future operations and can be converted into cash when required.

[Hint for the next step]

Use information about liabilities to identify the correct option

Step 2 of 2

Unearned revenue can be identified as a liability account

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The Unearned Revenue is a liability account.

Unearned revenue is a type of accrual in which the cash is received by the company before the goods are provided or services are rendered. Hence, the company is indeed receiving payment for work to be performed at some future date.

The company is obligated to provide goods/services for which they have received an advance payment. Thus, till the time the company doesn’t fulfill their obligation, unearned revenue will be classified as a liability on the balance sheet.