Question

A company received an order from a customer in June for services to be provided. Those services were provided in July, and the customer paid the full amount in August. According to the revenue recognition principle, in which month should the company record revenue? June. July. August. Evenly over the three months.

Answer 1

Answer:

July.

Explanation:

Revenue should be recognize when earned. The services were provided o July, so are earned in July.

During June, the customer can cancel the order. The company should not recognize yet. It has to be conservative.

Under cash basis,  the services will be recognize on August which, is the payment date. But, on recognition principle we should use accrual basis. The business provide services on July afterwhich it can claim to the customer the amount therefore, it is a realziable gain.