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ABC Ltd. Received an advance on sale in the month of Dec’18 for the sales made in the month of May’19. The sale should be recognized on?
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ABC Ltd. Received an advance on sale in the month of Dec’18 for the sa...
The sale should be recognized on the date of delivery in May’19, which is when the goods were transferred to the customer. The advance received in Dec’18 should be recognized as a liability and will be offset against the sale when it is recognized.
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ABC Ltd. Received an advance on sale in the month of Dec’18 for the sa...
Recognition of Sales Made on Advance Payment
When a company receives an advance payment for a sale, the recognition of the sale depends on the revenue recognition principle. According to this principle, revenue should be recognized when it is realized or realizable, and earned. In this case, the sale should be recognized on the following basis:
1. Realization Principle
The realization principle states that revenue should be recognized when it is realized or realizable. In the given scenario, the advance payment received by ABC Ltd. in December 2018 represents the realization of revenue. Therefore, the sale should be recognized in December 2018.
2. Earning Principle
The earning principle states that revenue should be recognized when it is earned. In this case, the sale is considered earned when the goods or services are delivered to the customer. As the sales were made in May 2019, the sale should be recognized in May 2019.
3. Matching Principle
The matching principle states that revenues should be matched with the expenses incurred to generate those revenues. In this case, the expenses related to the sale should also be recognized in May 2019 to match with the revenue recognition.
Conclusion
Based on the realization principle and the earning principle, the sale made on advance payment should be recognized in December 2018. However, to ensure the matching of revenues and expenses, the expenses related to the sale should also be recognized in May 2019.
By following these principles, ABC Ltd. can accurately record and report its sales and expenses, providing a clear and transparent picture of its financial performance to stakeholders.
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ABC Ltd. Received an advance on sale in the month of Dec’18 for the sales made in the month of May’19. The sale should be recognized on?
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ABC Ltd. Received an advance on sale in the month of Dec’18 for the sales made in the month of May’19. The sale should be recognized on? for Class 11 2024 is part of Class 11 preparation. The Question and answers have been prepared according to the Class 11 exam syllabus. Information about ABC Ltd. Received an advance on sale in the month of Dec’18 for the sales made in the month of May’19. The sale should be recognized on? covers all topics & solutions for Class 11 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for ABC Ltd. Received an advance on sale in the month of Dec’18 for the sales made in the month of May’19. The sale should be recognized on?.
ABC Ltd. Received an advance on sale in the month of Dec’18 for the sales made in the month of May’19. The sale should be recognized on? for Class 11 2024 is part of Class 11 preparation. The Question and answers have been prepared according to the Class 11 exam syllabus. Information about ABC Ltd. Received an advance on sale in the month of Dec’18 for the sales made in the month of May’19. The sale should be recognized on? covers all topics & solutions for Class 11 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for ABC Ltd. Received an advance on sale in the month of Dec’18 for the sales made in the month of May’19. The sale should be recognized on?.
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