Accounting Theory Question Case 8- 10 Accounting for Prepaids and Deferrals Short term deferrals (prepaid and unearned...

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Accounting

Accounting Theory Question
Case 8- 10 Accounting for Prepaids and Deferrals
Short term deferrals (prepaid and unearned revenues) areclassified as current assets and current liabilities. As suchincluded in working capital.
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1. Why do accountants include short-term unearned revenues ascurrent liabilities? Do they meet the definition of liabilitiesfound in the conceptual framework? Do they affect working capital?Explain.
2. Present arguments for excluding unearned revenues fromcurrent liabilities. Do they affect liquidity? Explain.

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Answer 1 Unearned income or deferred income normally speaks to an organizations present obligation and influences its working capital by diminishing it Unearned income is recorded when a firm gets a loan from its client in return for items and services that are to be given in the future Since an organization cant perceive income on this loan and it owes cash to a client it must record a See Answer

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