Are advance collections from customers considered$$ liabilities? Explain.

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Part $1$

A$.$

No$.$ Advanced collections represent a cash$$ prepayment, and$/$or a receivable. In this$$ case, the company has been paid in advance for goods and services it will delivere sometime within the operating cycle. Until the goods or services are actually$$ delivered, the advance collection from customers represents a cash equivalent for the entity.

B$.$

No$.$ Advanced collections represent cash that was collected against the potential receivable created upon the sale of goods and services. Until the goods or services are actually$$ delivered, the advance collection from customers represents an asset for the entity.$$

C$.$

Yes. The advance collection from customers automatically creates a guarantee that the company will repair or replace any defective goods for a specified period of time after the date of payment. This guarantee represents a liability until the contract period ends.

D$.$

Yes. Advance collections represent revenues collected in advance of being earned. In this$$ case, the company has the obligation to deliver either goods or services to satisfy the liability. The advance collection is considered a deferred credit or unearned revenue. As the goods and services are$$ provided, a portion of the revenue is recognized. Until the goods or services are$$ provided, the advance collection from customers represents a liability for the entity.