Thursday, September 3, 2009

Deferred Gross Profit Liability

How is Deferred gross profit a liability on the balance sheet?

Deferred profit is the amount that is received for something to be rendered in the future, which means there was a contract to render service or to deliver goods, that is why it is  considered a liability on the accounting balance sheet.

For example, if the sales receipt received in 2011 is for $100. Use the following journal entries:

DEBIT Cash $100
CREDIT  Sales Debtor  $100

When services have been rendered or goods delivered. Use the following journal entries:

DEBIT Sales Debtor
CREDIT Sales.

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