The revenue recognition principle The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company. Installment sales method: Under the installment sales, the revenue and costs are recognized only when the payment of cash is received from customer. Two composed components are involved in the each payment of cash. Components of sales are as follows: Partial recovery of the cost from sales Component of gross profit These components are determined by the percentage of gross profit which is applicable to sales. Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions: Debit , all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities. Credit , all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses. To prepare: The necessary journal entries of Company S to record the sale, receipt of the down payment, and the default and repossession applying the installment sales method.

Question

Cullumber Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1, 2025, Job 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $16,800, direct labor $10,080, and manufacturing overhead $13,440. As of January 1, Job 49 had been completed at a cost of $75,600 and was part of finished goods inventory. There was a $12,600 balance in the Raw Materials Inventory account on January 1. During the month of January, Cullumber Company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were sold on account during the month for $102,480 and $132,720, respectively. The following additional events occurred during the month. 1. Purchased additional raw materials of $75,600 on account. 2. Incurred factory labor costs of $58,800. 3. Incurred manufacturing overhead costs as follows: depreciation expense on equipment $10,080; and various other…

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Question

Chapter 5, Problem 5.28E

To determine

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) is completed by the company.

Installment sales method:

Under the installment sales, the revenue and costs are recognized only when the payment of cash is received from customer. Two composed components are involved in the each payment of cash. Components of sales are as follows:

Partial recovery of the cost from sales

Component of gross profit

These components are determined by the percentage of gross profit which is applicable to sales.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To prepare: The necessary journal entries of Company S to record the sale, receipt of the down payment, and the default and repossession applying the installment sales method.

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