CFA Practice Question

CFA Practice Question

All of the following are examples of deferred credits except:
A. A sale of goods which can be returned within 30 days for a full credit.
B. A billing for a contract that has yet to be completed.
C. A deposit for the lease of a building.
Explanation: Many companies sell goods that can be returned within a certain period of time. It does not mean that they can't take those revenues into income until the return period is over. Companies handle this situation by allocating some amount as a provision for returns from customers.

User Contributed Comments 4

User Comment
Kashi2010 Would help if they clarified whether the entity is lessor or leasee in respect of the lease deposit so we can tell if it is a debit or credit!
DanHuk Does not matter: from the lessee's or lessor's perspective it is not deferred credit either.
mc42086 Dan you are wrong. If you are the Lessor and you have received rental deposit for a service yet to be provided, you would defer that credit until the revenue is earned. Whereas if you were putting down the deposit (Leasee) it would be prepaid expense (asset).
birdperson i had the same thought as mc42086.
You need to log in first to add your comment.