Name ICE- Revenue Recognition, Sales R&A;, and Sales Discounts Revenue should be
ID: 2586298 • Letter: N
Question
Name ICE- Revenue Recognition, Sales R&A;, and Sales Discounts Revenue should be recognized when it is earned and realized (Cash or a promise of Cash) T F T F A customer prepays for a service; revenue is booked when the cash is received TF A customer makes a deposit when purchasing inventory; revenue is booked when is delivered TF Sales Returns & Allowances is a contra -revenue account which tracks returns by customers and price allowances (for faulty product) granted to customers TF When customers are allowed to take a discount for early payment, the discount is recorded in the Sales Returns & Allowances account. to arrive at Sales, net which is reported on the Income Statement. entries are made. One to increase Cash or A/R and increase Sales Revenue. The TF Sales Returns &Allowances; and Sales Discounts are subtracted from Sales Revenue TF When Inventory is sold using a perpetual inventory tracking system, two journal second to increase COGS and decrease Inventory. T F As temporary accounts, both Sales Returns&Allowance; and Sales Discounts will be zeroed out at year-end using closing entries.Explanation / Answer
1. False . Revenue must be recognised as and when it is earned. It may not necessarily be received in Cash.
2.False. In this case the customer is making advance payment even before the service has been rendered. Therefore revenue must be recognised when the service is rendered. A liability for the advance received from the customer must be recognised when the cash was received initially.
3.False. Mere delivery of goods is not sufficient to recognise the revenue. The significant risk and reward associated with the goods must also be transfered by the seller to the buyer. Normally the phiysical transfer of the goods and the transfer of the risk and reward of the goods both occur at the same time.
4. True . Both sales return and price allowances for delivery of faulty product lead to similar accounting treatment.
5. False. Discount allowed to the customers on account of early payment needs to be recorded through "Sales Discount" account or "Discount Allowed " account. The treatment of using "Sales-Return/Allowances" is incorrect.
6.False, The sales return is reduced from the sales account and the net is recognised in the Income Statement. Whereas, the Discount allowed account is an expense and must be recognised seperately in the Income Statement.
7. True
8. True. Both Sales Return/Allowance account and Discount Allowed account have a direct or indirect relation with the Income Statement. Hence, both these accounts are required to be closed by transferring them to the Income Statement .
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