Question

A company with a December 31 fiscal year end sold and delivered $5,000 worth of inventory on December 15, 2016 with payments of $1,200 collected on December 28, 2016 and $3,800 collected January 25, 2017. Under the accrual method of accounting, what amount of revenue would be recognized in 2016?

Answer 1

Answer:

$5,000

Explanation:

Under the accrual accounting method, revenue is recognized and recorded in the books once the recognition criteria is met i.e once the goods or service has been delivered.

Under this system as well expenses are recorded once incurred.

As such, the time of cash payment does not affect the recognition of revenue. When revenue is earned and cash is yet to be paid, the entries required are debit accounts receivable and credit revenue.

On payment of cash, the entries are posted between cash and accounts receivables.

Answer 2

Answer:

Explanation:

Accrual accounting means revenue and expenses are recognized and recorded when they occur unlike cash basis which are revenues recognised recorded when there are cash payments.

Given:

Sold = $ 5,000

Cash in 2016 = $ 1,200

Cash in 2017 = $ 3,800

Using the above definition of accrual accounting,

Revenue = $ 5,000