Question

Income received in advance will be shown as ________.

• A. Current asset
• B. Current liabilities
• C. Fixed asset
• D. Fixed liabilities

Answer 1

Answer: (B)

Current liabilities

Sometimes, a certain income is received but the whole amount of it does not belong to the current period. The portion of the income which belongs to the next accounting period is termed as income received in advance or an Unearned Income. Income received in advance is adjusted by recording the following entry:

Concerned Income A/c Dr.

To Income Received in Advance A/c

The effect of this entry will be that the balance in he income account will be equal to the amount of income earned for the current accounting period, and the new account of income received in advance will be shown as a liability in the balance sheet.