A retail store sold gift certificates that are redeemable in merchandise. The gift certificates lapse one year after they are issued. How would the deferred revenue account be affected by each of the following?
Choice "C" is correct. Deferred revenue represents future income collected in advance. When the gift certificates are sold, deferred revenue is increased. When the certificates are redeemed, the revenue is earned and shown in the income statement. Deferred revenue is decreased.When the certificates lapse, the company has no further liability and revenue is earned. Deferred revenue is decreased.
