The realization principle determines when a business should recognize revenue. Listed are three common business situations involving
Question:
The realization principle determines when a business should recognize revenue. Listed are three common business situations involving revenue. After each situation, we give two alternatives as to the accounting period (or periods) in which the business might recognize this revenue. Select the appropriate alternative by applying the realization principle, and explain your reasoning.
a. Airline ticket revenue: Most airlines sell tickets well before the scheduled date of the flight. (Period ticket sold; period of flight)
b. Sales on account: In June 2021, a San Diego–based furniture store had a big sale, featuring “No payments until 2022.” (Period furniture sold; periods that payments are received from customers)
c. Magazine subscriptions revenue: Most magazine publishers sell subscriptions for future delivery of the magazine. (Period subscription sold; periods that magazines are mailed to customers)
Step by Step Answer:
Financial And Managerial Accounting The Basis For Business Decisions
ISBN: 9781260247930
19th Edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello