Accounting Online Program Certification Practice Test

What amount should be listed as deferred income in Harry’s balance sheet at the end of 20X2?

1. £500

2. £725

3. £200

4. £800

The correct answer is: £200

To determine the amount that should be classified as deferred income on Harry's balance sheet at the end of 20X2, it is essential to understand the concept of deferred income, also known as unearned revenue. Deferred income represents money received by an entity for services or products that have not yet been delivered or performed at the time the balance sheet is prepared. This amount will subsequently be recognized as revenue once the associated service or product is provided. When establishing the amount for deferred income, it is crucial to evaluate the total amount received in advance and any relevant adjustments that need to be applied. For instance, if Harry received cash for services to be provided in the future, that amount would be recorded as deferred income. The value of £200 represents the correct calculation based on the specifics of the situation which likely involves recognizing amounts for services not yet rendered by the balance sheet date. The other values such as £500, £725, and £800 could possibly stem from miscalculations or incorrect assumptions about the revenue recognition schedule or amounts received for various services. Only the £200 reflects the accurate figure that aligns with the principles of accrual accounting, which dictates that income is recognized when earned rather than when received. Thus, the £200 amount should be