American Paging Inc., is the seventh
largest paging company in the united states. In a recent balance
sheet, it reported a current liability of $8,452, 379 that was
labeled unearned revenues and deposits. A note to the financial
statements explained:
unearned revenues and deposits primarily represent monthly
charges to customers for radio paging rental and dispatch billed in
advance. Such revenues and deposits are recognized in the following
month when service is provided or are applied against the
customer's final bill or last month's rent.
What basic principle of accounting guides American Paging's
handling of its unearned revenues and deposits?
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