A roofing company collects fees when jobs are complete. The work for one customer, whose job was bid at $3,000, has been completed as of December 31, but the customer has not yet been billed. Assuming adjustments are only made at year-end, what is the adjusting entry the company would need to make on December 31, the calendar year-end?

Question

Business

Kian Hancock

27 December, 18:35

A roofing company collects fees when jobs are complete. The work for one customer, whose job was bid at $3,000, has been completed as of December 31, but the customer has not yet been billed. Assuming adjustments are only made at year-end, what is the adjusting entry the company would need to make on December 31, the calendar year-end?

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Carl Newman · Answer 1

Debit Accounts Receivable, $3,000; credit Roofing Fees Revenue, $3,000.

Explanation:

The revenue recognition principle provides that revenue is recognized when it is earned, and when it is realized or realizable. Revenue is earned when the earnings process is substantially complete. Revenue is realized when goods and services are exchanged for cash or claims to cash.

In this case, on December 31 the service has been completed. The adjusting entry the company would need to make is:

-Make a debit in the account of Accounts Receivable (asset account), for $3,000.

-Make a credit in the account of Roofing Fees Revenue (revenue account), for$3,000.