Question

Please also provide step by step explanation/ working thank you Live Wire Hot Rod Shop follows the revenue recognition principle. Live Wire services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Live Wire on August 5. Live Wire receives the check in the mail on August 6. When should Live Wire recognize that the revenue? a. August 1 b. July 31 c. August 5 d. August 6

Answer 1

Answer:

B. July 31

Explanation:

Revenue recognition principle assumes that revenues are recognized when they are realized or relizable and are earned, in respective of when payments are received.

It states that one should only record revenue when it has been earned, not when the related work payments is collected. Also, money paid in advance for a work should be recorded as a liability not revenue.

Since Live Wire services uses revenue recognition principles, then the day they'd record it as revenue is thesame day the job was done and completed which was July 31st.