There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion (A): Income received in advance is shown as Other Current Liabilities.
Reason (R): Income received in advance is an income, therefore, it is shown as Revenue from Operations in the Statement of Profit and Loss.
Answer & explanation
Correct answer: option 3
Income received in advance refers to an income that has been received by the entity in the current accounting period but it actually relates to the future accounting period. The entity has just received the income but has not earned it yet. It is also known as Unearned Income. The entity receiving the income in advance still has an obligation to render the goods or services in the next accounting period, corresponding to the income received. Only after the entity renders the goods or service, the transaction will be considered complete. So, because of this reason, income received in advance is certainly considered to be a liability.