Hertzel Advertising Agency handles advertising for clients under contracts that require the agency to develop advertising copy
Question:
(1) At the time the advanced billing is made,
(2) When payment is received from the client,
(3) In the month when the advertising appears in the media, and
(4) When the bill for advertising is received from the media, generally in the month following its appearance. The agency has been following the first method for the past several years on the basis that a definite contract exists and the revenue is earned when billed. When the billing is made, an entry is prepared to record the estimated receivable and liability to the media. Estimated expenses related to the contract are also recorded. Adjusting entries are made later for any differences between the estimated and actual amounts. As a member of the CPA firm attending this meeting, how would you react to the agency’s method of recognizing revenue? Discuss the strengths and weaknesses of each of the four methods of revenue recognition, and indicate which one you would recommend for the agency to follow.
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Related Book For
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen
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