Question

In the Month of March, Baldwin received orders of 101 units at a price of $15.00 for their product Bill. Baldwin uses the accrual method of accounting and offers 30 day credit terms. Baldwin delivers 101 units in April. They received payment for 51 units in March, and 51 units in April.
In the March income statement, how much revenue is recognized on the March income statement from this order? How much in the April Income statement? (Answer in thousands)

a. 0, $758

b. $1,515 , 0

c. $758 , $758

d.v 0, $1,515

Answer 1

Answer:

d) 0, $1,515

Explanation:

total sales revenue = 101 units x $15 per unit = $1,515

since the goods were delivered in April, the sales revenue must be recorded in April, not March (when the orders and advanced payments were received), nor May (when the invoices were paid in full).

The accrual accounting system states that revenues and costs must be recognized during the periods when they actually occur and not when the sales are collected or expenses are paid.

The journal entries to record this sales would be:

March, order for 101 units is received:

Dr Cash 757.50

    Cr Unearned revenue 757,50

April, the goods are delivered:

Dr Unearned revenue 757.50

Dr Accounts receivable 757.50

    Cr Sales revenue 1,515

May, the invoice is paid in full:

Dr Cash 757.50

    Cr Accounts receivable 757.50