CFA CFA Level 1 Question of the Week – Financial Reporting and Analysis

Question of the Week – Financial Reporting and Analysis

  • This topic has 8 replies, 7 voices, and was last updated Jan-18 by Maverick.
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    • AdaptPrep
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      Unearned revenue can be best classified as which type of an account?

      • Asset
      • Liability
      • Income
    • hairyfairy
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      I like the new leaderboards! (Also the fact that I’m *just* on one of them!)

    • AlphaDoll
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      Hmm. Only one with a wrong answer. I have a lot to learn…

    • jak5189
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      Remember revenue is recognized if it is realizable and earned. In this case, the company would receive the cash and, since it did not provide the services or deliver the goods, record an offsetting balance sheet entry, which would be a liability in this scenario. Once the company actually delivers the good or service, it will then reverse that liability and record a revenue. 

    • hairyfairy
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      AlphaDoll said:
      Hmm. Only one with a wrong answer. I have a lot to learn…

      Don’t give up! 🙂

    • AdaptPrep
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      The unearned revenue account is created when revenue
      comes in before the product or service is provided. Because that cash has come
      in, the company owes a product or service to the customer (and will have to pay
      back the money if they do not come through). Like any obligation, unearned
      revenue is a liability.

    • surangasa
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      Damn, clicked the wrong radio button and pressed vote. Unearned simply means I haven’t earned it yet and therefore it is a liability. 

    • shannondaily
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      Woo! I got it right. 

    • Maverick
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      Woo! I got it right. 

      Yay! A bit of positive reinforcement on the forums always goes a long way to good self esteem before the exam.

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