Starbucks generates revenues in many different ways. In addition to owning its o

Question

Starbucks generates revenues in many different ways. In addition to owning its own stores, it licenses other companies to sell Starbucks brewed and ground coffees, teas, and other products. For each of the following customers, describe how Starbucks should recognize revenue and the working capital accounts that would likely be created by the revenue recognition approach. (For items 1 - 5 ignore taxes.)

A. Cash customer purchasing coffee at a Starbucks-owned retail store.

B. Customer adding cash balance to her Starbucks card.

C. Customer at Starbuck-owned retail store paying for coffee with a Starbucks card

D. Other businesses that purchase Starbucks' products on credit.

E. Licensed stores.

F. Customer remitting sales taxes to Starbucks when purchasing coffee.

Explanation / Answer

Sr No Revenue Recognition Working Capital A/c created   A Revenue recognized at cash sales Cash Account Debited B No revenue recognized. Card Balance is treated as deferred revenue as Unearned revenue. Cash Debited. Unearned Revenue Liability A/C credited.   C Revenue recognized at card payment. Uneaned Revenue A/C (Deferred Revenue) is debited as the sales revenue account is credited. D Intercompany Revenue Recognized on sale. Accounts Receivable is debited as the sale is credit sale, E Licensing Fee revenue is treated as Deferred revenue and Recognized on pro-rata basis over the period of License Cash is debited and Unearned Revenue Credited. F No revenue recognized. Sales Tax is payable to Govt , only collected on behalf of Govt. Cash Debited and Sales Tax Payable A/C credited.

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