When setting up a deferred revenue membership, which type of account should be used for sale and renewal tasks?

• A. Asset
• B. Revenue
• C. Liability
• D. Expense

Answer: (C)

In the context of setting up a deferred revenue membership, using a liability account is appropriate because deferred revenue represents money that has been received but not yet earned. When customers pay for a membership in advance, the business has an obligation to provide services over the period of that membership. This obligation creates a liability on the company's balance sheet because it reflects the company’s duty to deliver the promised services in the future.

As the membership period progresses and the services are delivered, revenue can then be recognized. This is aligned with the accrual accounting principles, which stipulate that revenue should only be recognized when it is earned. Therefore, during the sale and renewal tasks for deferred revenue memberships, a liability account effectively tracks the advance payments until the corresponding services are rendered.