Question

Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?​ ​No, the amount of revenue cannot be adequately determined until the company completes the work. ​Yes, the intent of the company is to perform the work and the customer is confident that the services will be completed. ​Yes, they are treated as revenue at the time of receipt because the company has access to the cash. ​No, revenue cannot be recognized until the work is performed.

Answer 1

Advances Received from customers cannot be treated as revenue as the work is yet to be done. Revenue can only be recognized based on the completion of the work undertaken.

As per the revenue recognition standard, the revenue can be recognized based on the percentage of completion of the work.

Until the work is completed the amount received will be shown as advances from customer under Accounts Payable and will be knocked off with the revenue after the completion of the work.

Therefore, the option D is correct.