ABC Company signs a contract on September 1, 2016 with a customer and agrees to

Question

ABC Company signs a contract on September 1, 2016 with a customer and agrees to produce two machines according to the customer's specifications. On the date of the contract signing, the customer pays 25% of the total contract price up front as a down payment. The machines will be manufactured and delivered in February of 2017. The company records the cash received with a debit, and credits a liability, "Unearned Revenue".

Identify which accounting concept(s) support this treatment:

I. Expense Recognition (Matching)

II. Revenue Recognition

III. Going Concern

IV. Measurement Principle

A. I&IV only

B. II only

C.III only

D.II & III

Explanation / Answer

ABC Company signs a contract on September 1, 2016 with a customer and agrees to produce two machines according to the customer's specifications. On the date of the contract signing, the customer pays 25% of the total contract price up front as a down payment. The machines will be manufactured and delivered in February of 2017. The company records the cash received with a debit, and credits a liability, "Unearned Revenue".

In the given case the treatment is supported by Revenue Recognition and Gopinf concern Principal.

As pr revenue recognition the revenue should be recognized only when it is earned.

And as per going concern assumption e assume that business shall be continued for force able future.,

Hence correct answer shall be :

D.II & III

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