https://edugen.wileyplus.com/edugenstudent/mainfruni Kimmel, Accounting, 6e ice
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https://edugen.wileyplus.com/edugenstudent/mainfruni Kimmel, Accounting, 6e ice Assignment Gradebook ORION Downloadable eTextbook ment Question 1 Which of the following would not be an application of the revenue recognition or expense recognition principle? O Recording the collection of an advance customer payment as revenue. O Recording prepaid expense adjustments. O Recording accrued interest revenue. O Recording accrued salaries and wages expense tivacypedor i 2000-2010)atny0letasonsinc. An Rights Reserved. A Division ar Jonnyiley a son!nc. e to search 0Explanation / Answer
Option A recording the collection of an advance customer payment as revenue is not application of revenue recognition and expenses recognition principle
According to revenue recognition principle an entity should recognize the revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which company is expected to entitle in exchange of goods and services. But advance received from customer is not backed by the delivery of goods and services by entity. Revenue is recognize only when whole transaction is complete. The seller received the payments and buyers received the goods. But in above case only seller received the payments for future delivery of goods. So this transaction is still not complete and we can record this advance as revenue.
According to expenses recognition principle expenses should be recognized for the same period as the revenue they belongs. Means expenses should be recorded for those period in which revenue record from these expenses.
Let us take an example.
Outstanding wages and salaries are recorded in the period in which they occurred not in period in which they paid. They will recorded in that period in which revenue or benefits derived from those wages and salaries....If worker has wages of 100$ in 2017 and he worked in 2017 to produce goods for sale in 2017 . His wages will be recorded in 2017 whether they are paid or outstanding. Because benefits of his wages received in 2017. Sales will record in 2017 and wages will also record in 2017.
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