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 A to record the sale, receipt of the down payment, and receipt of the first installment.

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Answer 1

Question

Chapter 5, Problem 5.29E

Requirement – 1

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 A to record the sale, receipt of the down payment, and receipt of the first installment.

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

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Answer 2

Question

Chapter 5, Problem 5.29E

Requirement – 1

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 A to record the sale, receipt of the down payment, and receipt of the first installment.

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Expert Solution & Answer

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Answer 3

Question

Chapter 5, Problem 5.29E

Requirement – 1

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 A to record the sale, receipt of the down payment, and receipt of the first installment.

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Expert Solution & Answer

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Answer 4

Question

Chapter 5, Problem 5.29E

Requirement – 1

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 A to record the sale, receipt of the down payment, and receipt of the first installment.

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Expert Solution & Answer

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Answer 5

Chapter 5, Problem 5.29E

Requirement – 1

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 A to record the sale, receipt of the down payment, and receipt of the first installment.

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Answer 6

Chapter 5, Problem 5.29E

Requirement – 1

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 A to record the sale, receipt of the down payment, and receipt of the first installment.

Answer 7

Chapter 5, Problem 5.29E

Requirement – 1

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 A to record the sale, receipt of the down payment, and receipt of the first installment.

Answer 8

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Answer 9

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 5 - What are the five key steps a company follows to...Ch. 5 - What indicators suggest that a performance...Ch. 5 - What criteria determine whether a company can...Ch. 5 - We recognize service revenue either at one point...Ch. 5 - What characteristics make a good or service a...Ch. 5 - Prob. 5.6Q Ch. 5 - What must a contract include for the contract to...Ch. 5 - How might the definition of probable affect...Ch. 5 - When a contract includes an option to buy...Ch. 5 - Prob. 5.10Q

Solution Summary: The author explains the revenue recognition principle, which refers to revenue that should be recognized when the performance obligation (sales or services) is completed by the company.

Concept explainers

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

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Chapter 5 Solutions