Multiple Choice
When accounting for accrued revenues, how should changes in estimated option forfeitures be recognized?
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3. Accrual Accounting Concepts
Adjusting Entries: Accrued Revenues
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On December 23, a customer placed an order with Timely, Inc. On December 28, Timely, Inc. delivered the product to the customer. Timely's accountant forgot to make the entry and made the entry on January 3. The customer paid its account in full on January 7. When should Timely, Inc. record the revenue?
A
December 23
B
December 28
C
January 3
D
January 7
Verified step by step guidance1
Understand the revenue recognition principle, which states that revenue should be recognized when it is earned and realizable, regardless of when cash is received.
Identify the key dates in the problem: December 23 (order placed), December 28 (product delivered), January 3 (entry made), and January 7 (payment received).
Determine when the revenue is earned. In this scenario, revenue is earned when the product is delivered to the customer, which is on December 28.
Recognize that the date of the accounting entry (January 3) and the date of payment (January 7) do not affect the date when revenue is recognized according to the revenue recognition principle.
Conclude that Timely, Inc. should record the revenue on December 28, the date when the product was delivered and the revenue was earned.
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