For financial reporting purposes, an advance payment for services is NOT recorded as a revenue, but rather recorded as a (n). It will be recognized as a revenue when it is earned. For tax reporting purposes, an advance payment is taxed immediately because the payment meets the - test. However, there is an exception which allows the prepaid income to be recognized in the following the receipt if certain conditions are met

Question

Justus Mcfarland

Business

25 July, 14:33

For financial reporting purposes, an advance payment for services is NOT recorded as a revenue, but rather recorded as a (n). It will be recognized as a revenue when it is earned. For tax reporting purposes, an advance payment is taxed immediately because the payment meets the - test. However, there is an exception which allows the prepaid income to be recognized in the following the receipt if certain conditions are met

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Answers (1)

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Joel Benson · Answer 1

The correct words to fill the gaps are: liabilities, all events, year

Explanation:

The receipt of advance payment for services is not seen as revenue because the beneficiary of such receipt is yet to perform the required services that would enable to recognized such amount as revenue, since revenue is not earned the party receiving the payment has rendered the required services.

However, for tax reporting purposes the advance receipt of cash can be charged to tax without delay if the payment meets all events test.

That means all events which allow an accrual tax payer to report income or expenses have been met.