1. A customer prepays a vendor for goods or services not yet delivered or provided. When she receives the customers check, the vendors accountant records that deposit as a liability, called Unearned Revenue. In the following month, the vendor delivers the goods (or completes the services). At that time, the vendors accountant removes the unearned revenue amount from the liability account and recognizes a sale in the vendors revenue account

Required:Is this the correct accounting for the transaction? Please explain your answer, briefly.

2. When preparing the cash flow from operating activities under the indirect method, why does the company add back depreciation expense as a reconciling item in determining net cash provided or used for operating activities? What other items might be included in that reconciliation?