Mr. Lincoln has his own CPA firm. A client sends him the following email: Dear M

Question

Mr. Lincoln has his own CPA firm. A client sends him the following email:

Dear Mr. Lincoln, As you know, I am a plumber. On October 29th I received a phone call from a customer asking me to do some plumbing for their house that is being remodeled. We agreed that I would meet them and provide plumbing services for them on November 20th. I provided the services on November 20th, but they were unable to pay me that day. I gave them an invoice for $350. Today, December 5th, I received their $350 check as payment. When am I able to recognize the $350 in revenue?

Based on the Revenue Recognition Principle, when should Mr. Lincoln tell Sam to recognize revenue?

A. October 29

B. November 20

C. December 5th

D. When Sam cashes the check

Explanation / Answer

Answer:

As per Revenue Recognition Principle, there are 2 methods for revenue recognition which are as follows:

1. Accrual Method

2. Cash Method.

Under Accrual method revenue is booked as service is rendered whether cash is received or not. Under Cash method revenue is booked when cash is received. In General Practice Accrual Method is followed. Under this case if Accrual method is followed by Sam then November 20 is the date to recognise revenue.

But if cash method is followed then December 5th is the date of revenue recognise.

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