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      Question

      An enterprise follows accrual basis of accounting and

      records revenue when it is earned and expenses when incurred. A client makes an advance payment of ₹1,00,000 for goods to be delivered next quarter. How should this transaction be treated in the books?
      A As revenue of current period Correct Answer Incorrect Answer
      B As deferred revenue (liability) Correct Answer Incorrect Answer
      C As capital receipt Correct Answer Incorrect Answer
      D As trade receivable Correct Answer Incorrect Answer

      Solution

      Since the goods are not yet delivered, the amount cannot be treated as revenue. It’s a liability until the revenue is earned.

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