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4 August, 16:10

On December 15, 2019, a company receives an order from a customer for services to be performed on December 28, 2019. Due to a backlog of orders, the company does not perform the services until January 3, 2020. The customer pays for the services on January 6, 2020. The revenue principle requires the revenue to be recorded by the company on:

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  1. 4 August, 16:44
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    The revenue principle requires the revenue to be recorded by the company on January 3, 2020.

    Explanation:

    Revenue recognition principle states that income is recorded when it is earned irrespective of when the cash is received.

    Earning of Income neither means receiving of order as on December 15, 2019 nor commitment of completing the order as on December 28, 2019.

    The customer pays for the services on January 6, 2020. This date will not be considered as the date of income earning.

    Date of Income earning is when the services are rendered that is on January 3, 2020.
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