In each of the following situations, determine the month in which the business should recognize the revenue:
A. On June 5, Jacquie Monahan, an editor, received an advance from a publisher. She performed the work during the period July 8 through July 22. On August 9, Jacquie sent the publisher an accounting of her hours.
B. On February 27, Paul’s Plumbing placed an advertisement with the Kansas City Tribune. The full- page ad ran during the week of March 15-22. The Tribune billed Paul’s Plumbing for the ad on March 7, with payment terms of n/30. Payment was received by the Tribune on April 4.
C. On November 25, Bookworm, Inc., sold an encyclopedia to Children’s Learning Center on account. Payment was due on December 25 but was not received until January 15.
Revenue means anything the company received in return, cash, cash claim, any asset, etc.
It is recognized when earned and realized not only when received.
Revenue earned means that the company performs its job, deliver the goods or provide service to the customer, but the customer promise to pay cash after some time or issue cash claim or not directly pays to the company but reduce its liability, which ultimately increases the shareholders’ equity.
• The company delivers the goods but the buyer promise to pay the bill next week
• The company provides the service and the customer instead of paying in cash pay some liability of the company
Revenue realized means that the company received the cash or cash claim no matter goods are delivered or not. This is a situation when the customer does advance payment of goods or services.
• A customer pays in advance for a product which is currently out of stock.
• A customer book some services by paying in advance for next month.
A. Given information:
Payment received by Person JM, an editor: On June 5
Job performed by her: On July 8
Bill sent by person JM: On August 9
The revenue is recognized on June 5 as advance payment of the services, because the cash is received on that date.
B. Given information:
Person P placed an advertisement with KCT: On Feb 27
KCT sent the bill to person P: On March 7
The ad ran during the period of 15-22 March
Payment is received: On April 4
The revenue is recognized on March 15 march because KCT provides its services from march 15-22.
C. Given information:
BK Inc. sold an encyclopedia: On November 25
Payment due: On December 25
Payment received: January 15
The revenue is recognized on November 25 as credit sale, because BK Inc. delivers the goods whether cash received or not.