How should the proceeds received from the advance sale of tickets to a sporting event be trea, ted by the seller, assuming the tickets are nonrefundable? A. Unearned revenue is recognized to the extent costs have been incured B. Revenue is recognized to the extent costs have been incured C. Revenue is deferred until sporting event is held D. Revenue is recognized as the tickets are sold Please tell me what do you think, and please be kind to explain. Thanks
C
C. - because they’re still obligated to hold the event and should defer the revenue until this obligation has been fulfilled
C-because I remember doing this question…wow that is sad. dubj is correct in his reasoning.
C - matching principle. Revenue is recognized when the service (sporting event in this case) actually occurs.
But what do you actually record? What would the accounting entry be like? Debit Cash $1000 Credit Deferred Revenue $1000 If you were to prepare a balance sheet, how would it appear? If you were to prepare an income statement, how would it appear? Would you report $1000 as part of your revenue? C’mon accounting guys, come out of your hiding!
Dreary Wrote: ------------------------------------------------------- > But what do you actually record? What would the > accounting entry be like? > > Debit Cash $1000 > Credit Deferred Revenue $1000 > > If you were to prepare a balance sheet, how would > it appear? > If you were to prepare an income statement, how > would it appear? Would you report $1000 as part > of your revenue? > > C’mon accounting guys, come out of your hiding! That is the entry. No I/S impact until the revenue is recognized and then you just reverse the deferred account.
So is deferred revenue a contra asset account on your B/S?
Before event: Cash 1000 Unearned Revenue 1000 After event: Unearned Revenue 1000 Revenue 1000 sth like this
deferred or unearned revenue is a liability account
Why is the answer D incorect. Can’t we use the accrual accounting and recognize revenue before expenses?
“Why is the answer D incorect. Can’t we use the accrual accounting and recognize revenue before expenses?” Let’s say you sold the tickets on 12.31 for a concert on 1.5. On your 12.31 financials, what would your gross margin be?
It would consist only of the revenue received from selling the tickets
neagu.alexandru Wrote: ------------------------------------------------------- > It would consist only of the revenue received from > selling the tickets You need to pull out your accounting 101 textbook (or go buy one) and sytart cramming fast, becuase if you don’t understand this most basic principle a month before the test you’re screwed. The fundamental difference between cash basis and accrula basis accounting is that for accrual basis you recognize revenue/expenses when earned/incurred, not when the cash is actually paid. This is as balck and white an example as you can get. When you buy aticket you are not paying for the small slip of paper, you are paying for the event. Until the seller delivers on the event he hasn’t earned his money, plain and simple. If the event doesn’t take place he has to refund your money.
So, we have 4 senarios: 1) Service rendered, cash received Revenue earned and get recorded in I/S 2) Service rendered, cash not received This is like selling on credit, so I guess you do record revenue, albeit allowing for uncollectible mony, etc., help Super I. 3) Service not renderd, cash received Deferred revenue, nothing reported in I/S 4) Service not renderd, cash not received, …as in only signing a contract Nothing reported? Could someone clarify these with proper accounting terminology?
Dreary Wrote: ------------------------------------------------------- > So, we have 4 senarios: > > 1) Service rendered, cash received > Revenue earned and get recorded in I/S > > 2) Service rendered, cash not received > This is like selling on credit, so I guess you do > record revenue, albeit allowing for uncollectible > mony, etc., help Super I. > > 3) Service not renderd, cash received > Deferred revenue, nothing reported in I/S > > 4) Service not renderd, cash not received, …as > in only signing a contract > Nothing reported? > > Could someone clarify these with proper accounting > terminology? 1)yes 2)Recognize revenue and AR…unless you have specific knowledge that collectibility is an issue 3)yes 4)footnotes
if D would have been D. Unearned Revenue is recognized as the tickets are sold would that be corect?
neagu.alexandru Wrote: ------------------------------------------------------- > if D would have been D. Unearned Revenue is > recognized as the tickets are sold would that be > corect? I would prefer the word recorded to recognized, since recognized (or realized) tends to be used more when speaking about the income statement and here we are talking about the balance sheet (a liability), but basically the revised D might work.
Thanx a lot guys. I will do my best to get in shape. I am standing for December, but started early because I have a lot to learn