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Financial Reporting and Analysis Q99

0. An asset or liability is created on the balance sheet when revenue is recognized before cash is received and vice versa. Which of the following combinations is most accurate regarding the creation of an asset or liability?

Revenue recognized.Cash not received.Cash received. Revenue not recognized.
Asset Asset
Asset. Liability
Liability. Asset

  • Option : B
  • Explanation : Recognizing revenue before receiving cash creates a ‘receivable’ which is an asset. Receiving cash before recognizing revenue creates ‘unearned revenue’ which is a liability.
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