Question

Stacey, Inc. has been selling widgets to businesses for many years. Some widgets are made to order and require a deposit before being made and others are sold “off the shelf”. Please consider each of the following sales situations experienced by Stacey, Inc. and answer the questions after each situation.

On August 3, 2018, Stacey sells $50,000 of made to order widgets that will cost $32,000 to a regular customer. The customer makes a cash deposit of $30,000 for the widgets with the remainder to be paid upon delivery of the widgets, estimated to occur on August 24. How much is deferred revenue for August 3 under the accrual basis of accounting?

Answer 1

Answer:- For august 3 deferred revenue would be $30,000 as per the accrual basis of accounting. Here in this example revenue recognition principle of accounting implied that clearly explain we will consider our revenue only the part that has been actually earned. But here in this case delivery of goods will be done on 24 august hence we will consider it revenue only on 24th august else on 3rd aug it would be deffered revenue.

Deffered revenue journal entry as on 3rd aug.

Debit Cash $30,000 and credt deffered revenue $30,000