Question
Which accounting concept restricts a firm from booking
advance amount received from customers as a sale in the books of accounts?Solution
The accrual accounting concept recognizes revenue when it is earned and expenses when they are incurred, regardless of the timing of cash transactions. When an advance amount is received from customers, it represents a liability until the goods or services are delivered. It is only considered as a sale when the revenue is earned, which aligns with the accrual accounting principle.
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