Question

A customer purchased a $2,500 package of spa services on December 1st, 2022. The customer can use the spa from December 1st, 2022 through February 28th, 2023. Using the accrual basis of accounting, and assuming the spa uses a calendar year as its fiscal year, the spa should recognize ________ in revenue on its December 31st, 2022 financial statements.

Answer 1

Answer:

$833

Explanation:

As per accrual basis of accounting, an income is recognized when it is earned and not when cash is received for it.

In the given case, customer purchased a service for 3 months.

The position as on 31st Dec is that only one third i.e 1 month of services out of 3 months has been provided and 2 months of services is due which is yet to be provided against the collective cash received.

Hence, the spa should recognize 2500/3 i.e $833 in revenue on it's December 31st, 2022 financial statements.