Question

In December of this year, Chavez Landscaping received a customer’s order and cash prepayment to install sod at a house that would not be ready for installation until March of next year. Chavez should record the revenue from the customer order in March of next year, not in December of this year.

Answer 1

Answer:

This is known as Revenue recognition principle

Explanation:

Revenue recognition principle is an accepted principle in the field of accounting that helps to identify particular situations in which revenue is recognized and further determine how the revenue can be accounted for. Normally, you only recognize a revenue when the event has taken place, which means that it is recognized when the amount spent can be measured to the company. Since in December, it is not possible for the sod to be installed, it is only correct to record this revenue in March when the installation has taken place.