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29 March, 19:35

Below are transactions for Lobos, Inc., during the month of December. Calculate the amount of revenue to recognize in December.

a. Receive $1,200 cash from customers for services to be provided next month. 0

b. Perform $900 of services during the month and bill customers. Customers are expected to pay next month. 900

c. Perform $2,300 of services during the month and receive full cash payment from customers at thetime of service. 2300

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  1. 29 March, 20:48
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    Revenue recognized in Dec = $3200

    Explanation:

    Lets first understand the criteria for revenue recognition. According to the accruals concept of accounting, an entity is supposed to record revenues and expenses as soon as they are earned and incurred. An entity shouldn't wait until the revenue is received and expenses are actually paid. The accruals concept of accounting is also based on the matching principle which requires entities to match and record expenses with the revenue of the period in which they occur. Considering the two concepts mentioned above, we may classify these transactions for revenue recognition as follows;

    a. Receipt of $1200 cash:

    In this case Lobos Inc. has received the cash in advance and the services against this payment will be rendered next month, therefore, this transaction doesn't imply an earned revenue rather it's a liability for Lobos Inc until the services are actually rendered. No revenue is recognized in December.

    b. Perform $900 of services:

    Lobos Inc. will provide services to this customer and will receive payment in next month, however the services have been provided which implies Lobos Inc has earned the revenue, though not received it yet but still following the accruals concept, Revenue is recognized in December.

    c. Perform $2300 of services:

    Similarly, Lobos Inc. will render services and will receive the payment against these services in the month of Dec, therefore, Lobos Inc can recognize revenue in December.
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