A contractor receives $18,000 cash as a deposit before earning it. What is the main accounting concept?
Correct Answer
A) Liability until earned.
Cash can increase while revenue remains unearned; the deposit is a liability until earned.
Why This Is the Correct Answer
Cash can increase while revenue remains unearned; the deposit is a liability until earned.
Why the Other Options Are Wrong
Option B: Immediate gross profit.
Immediate gross profit. puts the item in the wrong financial bucket, timing, base, or comparison for customer deposits.
Option C: Owner draw.
Owner draw. puts the item in the wrong financial bucket, timing, base, or comparison for customer deposits.
Option D: Equipment depreciation.
Equipment depreciation. puts the item in the wrong financial bucket, timing, base, or comparison for customer deposits.
Memory Technique
Cash and increase point to different ledger roads for Explaining 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.
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