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ABC provides music for special occasions. On January 14, the Smith family hired ABC for an upcoming family wedding for an agreed upon fee of $10,000. The wedding was scheduled for May As part of the agreement, the Smiths paid ABC half of the fee at the end of April with the remaining amount due by the end of June.
Required:
1. How would ABC record the receipt of the final payment in June?

Respuesta :

Answer:

Debit Cash account (with the amount received)

Credit Accounts receivables (with the amount received)

Explanation:

Revenue is not recorded until the recognition criteria for the recognition of  revenue has been met and this includes;

  • the corresponding cost incurred in generating revenue can be reliably measured
  • the goods or service has been delivered

Given that the service was performed in May, when half of the fee was received in April, the required entries then was

Debit Cash account

Credit Unearned revenue (with the amount received being half payment)

when the service was performed in May,revenue was earned

Debit Unearned revenue (with the amount received being half payment)

Debit Accounts receivable  (with the amount yet to be received being half payment)

Credit Revenue (with the amount agreed for the service)

In June when the final payment is received,

Debit Cash account (with the amount received)

Credit Accounts receivables (with the amount received)

ABC should record the receipt of the final payment in June by Credit to Accounts Receivable.

Recording the receipt of the final payment:

Since there is an agreed fee of $10,000 as on January 14. Moreover, the wedding should be scheduled for may also the smith should be paid half of the fee amount at the closing of April month along with the left amount i.e. due at the closing of June.

So, here the services have already been performed in May, so the receipt should be credited to Accounts Receivable.

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