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21 November, 17:22

Sarjit Systems sold software to a customer for $80,000.

As part of the contract, Sarjit promises to provide "free" technical support over the next six months.

Sarjit sells the same software without technical support for $70,000 and a stand-alone six-month technical support contract for $30,000, so these products would sell for $100,000 if sold separately.

Prepare Sarjit's journal entry to record the sale of the software

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  1. 21 November, 17:28
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    If the products are sold seperately they would sell for $100,000:

    Software $70,000 = 70%

    Technical Support $30,000 = 30%

    Sarjit Systems sold the software for $80,000

    Software 70% of 80,000 = $56,000

    Technical Support 30% of 80,000 = $24,000

    We will record technical support as deferred revenue since the customer pays for the support upfront before receiving the service.

    The journal entry would be:

    Account Title Debit Credit

    Cash 80,000

    Sales Revenue 56,000

    Deferred Revenue 24,000
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