Financial Accounting Fundamentals | Online Course Support

In December, a company signed a contract with a regular customer, who has a good payment history, to sell products for $120,000. In January, the company delivered the products to the customer. The customer paid the company $100,000 in cash in February and $20,000 in March. Revenue regarding this transaction is recognized:

 
 
 
 
 
 

Correct answer. There are two criteria that a company must meet in order to record revenue: (1) it is earned (delivery has occurred/ services have been rendered) and (2) it is realizable (cash payment, or something that be readily converted into cash, has been received) or collectibility is reasonably assured. Since the company delivered the product in January, and at that time is reasonably sure it will receive payment from this customer, it does not need to wait until receiving payment to record revenue. It can record revenue, and a corresponding increase in AR, at the time the product was delivered.

Similar Posts