Question

This month, a company receives $5,000 from a regular customer, of which $3,000 is for products delivered last month and $2,000 is for products that will be delivered next month. How much revenue should the company record for this month?

Answer 1

Answer:

The company should recognize $2,000 in revenue.

Explanation:

The accrual principle in accounting states that revenues should match expenses. While the company received $5,000 in cash from the customer, in the current month, it will only have delivered $3,000 in products. In other words, it will only have incurred in the expenses necessary to deliver those $3,000.

For that reason, for the current month, the company will only recognize $3,000 in revenue, while the following month, it will recognize the remaining $2,000.