Chapter 5, Problem 1QC

A doctor for the Benson Family Practice performs a sports physical exam for Allison Smythe on February 1. The charge for the exam is $100; Smythe’s insurance company, Cardinal Health, is billed for the entire $100 on February 1. Cardinal Health receives the invoice on February 2, and enters the amount into its payment system on February 4. Benson Family Practice receives the $100 payment from Cardinal Health on February 20. On which date would Benson Family Practice recognize the revenue for Smythe’s physical?

  a.    February 1

  b.    February 2

  c.    February 4

  d.    February 20

To determine

The date of revenue recognition by B Family practice for AS’s physical exam.

Answer to Problem 1QC

Answer: a) February 1

Explanation of Solution

Revenue recognition principle:

Revenue recognition principle states that every business organization should recognize the revenue when it is earned, no matter, cash related to that obligation is received or not.

A doctor of B Family Practice performs a sports physical exam for AS on February 1. The charge for the exam is $100.

Hence, the revenue is earned on February 1. According to the Revenue recognition principle revenue should be recognized when it is earned, no matter, cash related to that obligation is received or not.

Options b, c and d are the dates indicating the dates when receiving of invoice, recording of transaction and payment are made by B Family practice.