Question

On April 17, 2014, Naughton Ltd. received an order from a customer for a delivery to be made in May 2014. Naughton Ltd. does not yet have the items ordered by the customer, but it expects to receive them shortly. The items will cost Naughton Ltd. $7,500 and the customer will pay $11,000 once the items are delivered. Which entry (if any) to be made on April 17, 2014?

Answer 1

Answer:

There is no entry to be made on April 17, 2014

Explanation:

Following The accrual principle - an accounting concept that requires accounting transactions to be recorded in the time period in which they actually occur, rather than the period in which the cash flows related to them occur or the transaction are received.

On April 17, 2014, Naughton Ltd. received an order from a customer for a delivery to be made in May 2014 and the delivery does not occur yet on that day. I should be occur in May 2014.

Therefore, there is no entry to be made on April 17, 2014. In May, when the company finish delivering, the entry would be made:

1. Debit Cash (or Accounts Receivable) $11,000

Credit Revenue $11,000

2. Debit Cost of goods sold  $7,500

Credit Cash $7,500