Question

This is a graded discussion: 10 points possible Discussion 2 de Sep 20 19 19 You have just graduated from the local University and landed what you had thought was a great job as an accountant for Crazy House Interiors, an upscale design studio. Your apartment is wonderful and you have made a lot of new friends. However, your boss has just asked you to do him a favor Crazy House is planning to ask one of the local banks for a loan. However , there is some concern because this year's revenues are considerably lower than the revenues of the previous year. ort One of the more talented designers has just landed a contract for a large profitable project. Half of the fee for the project is to be collected when the contract is signed at the end of this week, with the remainder of the money due when the project is completed. Work will begin on the project when the contract is signed. Your boss has asked you to record the initial payment of $125,000 as revenue at the time the money is received. Not wanting to disappoint the boss, you originally agreed to record the transaction as he requested. However, you are having second thoughts about recording the transaction and your ethical responsibilities, What should you do? Why? Rubric: To get the full score for this discussion, you must do the following 1. Answer the question correctly 2. Use accounting terms we learned in the class 3. Be concise and clear so that anybody can read your response and understand what you intend to communicate 4. You MUST respond to two people after you have posted your own response

Answer 1

The given case relates to the Revenue recognition concept or principle used in accounting. The project initial payment should be accounted in line with fundamental accounting concept of Revenue recognition. The initial payment of $125,000 should not be accounted as revenue in books of account as this is not in line with revenue recognition concept.

Explanation:

As per Revenue recognition concept the revenue is recognised when the goods are delivered to the customer or service is rendered to customer. The cash received from customer should not be recognised as revenue unless the product is delivered. Till then the advance received from the customer should be accounted as unearned revenue and it should be shown as current liabilities under the Liabilities section of Balance Sheet. The unearned revenue is recognised in Income statement based on performance of service or delivery of goods.