Crediting Unreceived Revenue

A

Revenue should be recognized in the period in which it is earned and is credited to the appropriate revenue account.

The correct answer is C. liability account.

Revenue represents the income earned by a company from its business activities. In accrual accounting, revenue is recognized when it is earned, regardless of when the payment is actually received. Therefore, at the end of a fiscal period, if there is revenue that has been earned but not yet received, it is considered an account receivable, which is a type of liability.

Liabilities are obligations or debts that a company owes to external parties. Account receivable is a specific type of liability that arises when a company has provided goods or services to customers on credit but has not yet received payment. This is a promise from the customer to pay the amount owed in the future. Until the payment is received, the revenue earned but not yet received is recorded as a liability in the financial statements.

Crediting an appropriate liability account means increasing the balance of the account. This reflects the fact that the company has earned revenue but has not yet received the corresponding cash or other forms of payment.

The other answer choices are not appropriate in this context:

A. Revenue account: This is incorrect because revenue accounts are used to record the income earned by the company. Crediting a revenue account would imply that the revenue has been received, which is not the case in this scenario.

B. Asset account: This is incorrect because asset accounts represent resources owned by the company, such as cash, inventory, or property. Revenue that has been earned but not yet received does not represent an asset since the company does not have the corresponding cash or other assets in hand.

D. Expense account: This is incorrect because expense accounts are used to record costs incurred by the company in generating revenue. Revenue that has been earned but not yet received is not an expense but rather a liability.

In summary, revenue that has been earned but not received should be credited to an appropriate liability account, reflecting the company's obligation to receive payment in the future.