A customer pays a $9,000 deposit before the contractor has earned the revenue. How should the deposit be classified initially?
Correct Answer
A) Liability for unearned revenue.
A customer deposit received before performance is initially a liability, often called unearned revenue or customer deposit.
Why This Is the Correct Answer
A customer deposit received before performance is initially a liability, often called unearned revenue or customer deposit.
Why the Other Options Are Wrong
Option B: Immediate gross profit in full.
Immediate gross profit in full. puts the item in the wrong financial bucket, timing, base, or comparison for customer deposits.
Option C: Owner's personal equity withdrawal.
Owner's personal equity withdrawal. puts the item in the wrong financial bucket, timing, base, or comparison for customer deposits.
Option D: Bad-debt expense.
Bad-debt expense. puts the item in the wrong financial bucket, timing, base, or comparison for customer deposits.
Memory Technique
Deposit and received point to different ledger roads for Posting Deposit.
Reference Hint
Study anchor (closed-book): memorize Customer deposits from CSLB Law and Business Study Guide; CSLB 2026 Law Book / CSLB Law and Business Study Guide Business Finances; know the rule or calculation trigger without relying on exam-room lookup.
More Law & Business Questions
A Fresno homeowner wants a $725 cabinet repair and trim adjustment. Which contract step best matches CA home improvement requirements?
A project has $6,500 retainage withheld. The owner releases 60 percent of retainage at substantial completion. How much cash is released?
Cash is $52,500 and monthly burn is $17,500. How many months of runway are available?
A supplier offers 1.5 percent early-pay discount on a $22,000 invoice. What is the discount?
A balance sheet lists assets of $310,000 and liabilities of $185,000. What is owner's equity?
A job is estimated to cost $135,000. What price gives a 25 percent gross margin?
A customer invoice of $4,000 has a stated late charge of 1.5 percent. What late charge is added?
A bid has direct labor of $18,000, materials of $12,500, and equipment rental of $3,500. If the contractor adds 20 percent markup on direct cost, what is the bid price?
A contractor wants a 25 percent gross margin on a job with estimated cost of $60,000. What selling price gives that margin?
A completed project sold for $150,000 and had total cost of $126,000. What gross margin percentage did the project earn?