Practice Quiz

RTRP - IRS Registered Tax Return Preparer Test

Category - Accounting

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If Petey’s Printing signs a contract on December 28 with Bart’s Brewskies to provide him with 1,000 going-out-of-business flyers, but the work will not be performed until January of the following year, where will this transaction be recorded on the December 31 balance sheet?
  1. In the owner’s equity section
  2. In the liabilities section
  3. In the assets section
  4. In the unearned income section
  5. It will not appear on the balance sheet
Explanation
Answer - E - The signed contract will not appear on the December 31 balance sheet.

Key Takeaway: A contract to perform future services for a customer is not reported on the balance sheet of the company that will be providing the services. With no down-payment or advance payment in December, there is no entry recorded. When answering the question, if there is no further information provided, such as a down-payment, answer the question as if there isn’t one.
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