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Allan provides IT services to a number of clients. One of his clients, George was invoiced...

Allan provides IT services to a number of clients. One of his clients, George was invoiced $52,000 for a maintenance work on his company’s servers, and $22,000 for software development. George is not happy with the invoices. He claims that Allan should have not have billed for the server maintenance because it is part of the yearly maintenance contract for which he pays $100,000 to Allan. And for the software development, He should only pay $18,000 as per the contract as the over time claimed by Allan should not have been billed as it is the responsibility of Allan to manage his time. How much should Allan recognize under the accrual method this year? Justify your answer.

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Answer #1

Allan must record an amount of $100000 + $18000 = $118000 for the year under consideration as he us following accrual system of accounting. Revenue must be recorded when services are rendered & not when the cash is received. The condition of recording is that there must not be any uncertainty in collection of the amount. In the above question customer has cleared that he is not going to pay extra & will oay as per the contract only.

So he will record $100000 of the maintenance contract + $18000 for the software development.

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