Question

The following transactions are July activities of Emma’s Tik Tok Service, which creates videos.

• Emma’s collected $2,250 from customers for services related to videos created in July.        
• Emma’s billed a customer for $768 for a video made on the last day of July. The bill is to be paid in August.                               
• On July 1, a customer gave Emma’s advance payments totaling $1,600 for the four months of work to be done equally staring in July
• Emma’s received $615 from credit sales made to customers last month (in June).

What is the revenue Emma will recognize in July?

Answer 1

Revenue to be recognized in July based on accrual basis will be $3,418.

Explanation:

Let us analyze each situation independently to determine the revenue to be recognized by Emma

1. Emma has collected $2,250 for videos created in July. This states that all the amount collected belongs to the services provided in the current month. Therefore, $2,250 will be recognized as revenue in the current month.
2. Emma has billed $768 for the services provided in July that will be paid in August. This states that the revenue belongs to the month of July and will be collected in the Month of August. Therefore, The revenue of $768 will be considered in the current month following the accrual method because the receipt is irrelevant to determine the period of accrual of income.
3. Emma has received $1,600 from a customer for the services to be provided in the month of July, August, September and October equally. Therefore a revenue of $400 (i.e. $1,600 / 4) will be accrued equally in every month. Hence, a revenue of $400 will be recognized as revenue in the month of July.
4. Emma has received $615 for the credit services provided in June. As the services are provided in the month of June, the revenue will also be recognized in the month of June, Therefore, no revenue will be recognized in the month of July.

Total Revenue to be recognized by Emma = $2,250 + $768 + $400 + $0

= $3,418