Question

Gary’s Green Thumb (GGT) is a landscaping company. GGT requires a 20% up-front deposit on all major landscaping jobs, with the balance due upon completion of the work. On March 15, 2018, GGT signed a contract to perform landscaping services for Sam Jones in the amount of $800. GGT received the $160 deposit on that date. GGT completed the landscaping services on March 30, 2018. How would GGT record the $160 received on March 15, 2018?

a. None of the above

b. As a Receivable

c. As a Prepaid Expense

d. As a Liability

e. As Revenue

Answer 1

Answer is: (d) As a liability

Upfront fee is basically paid when a contract is signed but work has not yet been finished. In other words, it is "seal the deal" Upfront fee has been paid on March 15, but the work is not completed till March 30, 2018. Till the work remains uncompleted, it has to be recorded as liability. Only when the landscaping services are provided then they will be recorded as revenue.

Hope this helps