Question

One of your friends just got a new accounting role at a different company. The friend told you they believe revenues from credit sales (sales on account) may be earned before they are collected in cash. Do you agree? Explain in detail why you agree or why you do not g.

Answer 1

Answer:

Yes I agree

Explanation:

The accountant is referring to the accrual method of accounting. In the accrual accounting approach, revenue is recognized the moment a transaction that results in income has happened.  For example, revenue from sales will be recorded once goods have been delivered and an invoice generated.

The accrual method is the most preferred method of accounting by medium and large businesses in the US. It recognizes revenue and expenses in the period that the corresponding economic activities occur regardless of whether money has changed hands. The other accounting technique is the cash accounting that recognizes revenue and expenses only when money has changed hands.