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Question 1 On December 15, 2015, a public company receives an order from a customer for...

Question 1

On December 15, 2015, a public company receives an order from a customer for services to be performed on December 28, 2015. Due to a backlog of orders, the company does not perform the services until January 3, 2016. The customer pays for the services on January 6, 2016. When should revenue be recorded for the company? Why (support your argument with a principle from the textbook)?

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Answer #1

Under Revenue recognition principle, the revenues shall be recognized in the books when the services are actually been performed for the client.

Merely receiving the order or cash in advance for the service to be rendered in future does not entitled the business to recognize the revenue. Therefore, the revenue shall be recognized only when the services have been performed whether the actual cash has been recieved on the date or not.

Therefore, in the given case, the order has been received on Dec28 but the company has performed the services on Jan03, 2016. Therefore, the service revenue shall be recognized on Jan03, 2016. This is irrespective of the fact that the actual cash for services rendered has been received on a later date.

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