Question

XYZ Law Firm provided services for a cllent for $5,000 cash and provided service for another for $10,000 that will pay for the services in a later time period. How much revenue should be reported on the income statement of the current time.
a. $5000
b. $10,000
c. $15,000
d. $0

Answer 1

Answer: The income statement should reflect $15,000.

Explanation: The reason is because accounting procedures are always guided by certain principles or concepts. One of such concepts is the Realization Concept. This simply states that income is considered to have been earned when the goods/services have been dispatched /rendered to the client and the client has incurred liability for such (or has accepted his/her indebtedness). The Accrual Concept is also applicable in the above instance because this concept/principle states that revenues and expenses are recognized as soon as they are earned and incurred and not when money is expended or received. So basically, XYZ Law firm has provided services for two clients. One of them has paid while the other will pay sometime later. Both of them are already recognized as revenue and the current income statement will reflect revenue transactions to the tune of $15,000.