Practice prompt · Q:transactions-to-statements/performance-timing-001

Cash before and after customer work

Classify a customer advance, work on credit, a collection, and a current cash expense.

Updated Sep 6, 2026 Review due Nov 6, 2026

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A company starts with zero balances and receives a $4,000 customer advance but has not begun the promised work. It performs a separate $2,000 service on credit, collects $1,000 of that receivable, and pays $1,200 for utility service used that day. Which ending classification is correct?

Choose the best answer. A Revenue $5,000; expense $1,200; liabilities $0; equity $3,800. B Revenue $2,000; expense $1,200; liabilities $4,000; equity $800. C Revenue $2,000; expense $1,200; liabilities $0; equity $800. D Revenue $1,000; expense $1,200; liabilities $4,000; equity $(200).

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Answer: B

The $4,000 advance increases Cash and liabilities because no related work has been performed. The separate $2,000 service increases Accounts Receivable and revenue. Collecting $1,000 reduces the receivable and increases Cash without increasing revenue again. Paying $1,200 for current utility service increases expense. Revenue is $2,000, expense is $1,200, liabilities are $4,000, and equity is $800.