A large auto manufacturer sells large fleets of vehicles to auto rental companies, such as Budget and Hertz. Suppose Budget is negotiating with the auto manufacturer to purchase 1,000 vehicles. Fill in the short paragraph to explain to the auto manufacturer when the company should, and should not, record this sales revenue and the related expense for cost of goods sold. Mention the accounting principles that provide the basis for your explanation. Let's decide how and when the manufacturer should recognize revenue. The manufacturer should record sales revenue when the revenue is (collected ,deferred, earned) by (agreeing to deliver, delivering, never delivering) automobiles to the auto rental companies. The manufacturer should not record any revenue (after, during, prior to) delivery of the vehicles to the auto rental companies because it hasn't (collected, deferred, earned)the revenue yet. The (expense recognition principle, historical cost principle, revenue principle) governs this decision. Where you see a set of words in parentheses it is where blanks are.
A large auto manufacturer sells large fleets of vehicles to auto rental companies, such as Budget and Hertz. Suppose Budget is negotiating with the auto manufacturer to purchase 1,000 vehicles. Fill in the short paragraph to explain to the auto manufacturer when the company should, and should not, record this sales revenue and the related expense for cost of goods sold. Mention the accounting principles that provide the basis for your explanation. Let's decide how and when the manufacturer should recognize revenue. The manufacturer should record sales revenue when the revenue is (collected ,deferred, earned) by (agreeing to deliver, delivering, never delivering) automobiles to the auto rental companies. The manufacturer should not record any revenue (after, during, prior to) delivery of the vehicles to the auto rental companies because it hasn't (collected, deferred, earned)the revenue yet. The (expense recognition principle, historical cost principle, revenue principle) governs this decision. Where you see a set of words in parentheses it is where blanks are.
College Accounting (Book Only): A Career Approach
13th Edition
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:Scott, Cathy J.
Chapter9: Sales And Purchases
Section: Chapter Questions
Problem 3A: Following is a trial balance prepared just before you were hired. Two accounts are missing, and the...
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A large auto manufacturer sells large fleets of vehicles to auto rental companies, such as Budget and Hertz. Suppose Budget is negotiating with the auto manufacturer to purchase 1,000 vehicles. Fill in the short paragraph to explain to the auto manufacturer when the company should, and should not, record this sales revenue and the related expense for cost of goods sold. Mention the accounting principles that provide the basis for your explanation.
Let's decide how and when the manufacturer should recognize revenue.
The manufacturer should record sales revenue when the revenue is
(collected ,deferred, earned) by (agreeing to deliver, delivering, never delivering) automobiles to the auto rental companies. The manufacturer should not record any revenue (after, during, prior to) delivery of the vehicles to the auto rental companies because it hasn't (collected, deferred, earned)the revenue yet. The (expense recognition principle, historical cost principle, revenue principle) governs this decision.
Where you see a set of words in parentheses it is where blanks are.
Expert Solution
EXPLANATION
ANSWER IS AS PER THE REVENUE RECOGNITION CONCEPT .
- IT STATES THAT REVENUE SHOULD BE RECOGNISED ON THE DELIVERY OF GOODS OR PERFORMANCE OF OBLIGATION IN CASE OF SERVICE .
- IT SHOULD NOT BE RECOGNISED WHEN CASH IS RECEIVED .
- ANY MONEY RECEIVED IN ADVANCE BEFORE DELIVERY OF GOODS OR COMPLETION OF SERVICE WILL BE UNEARNED REVENUE AND IT SHOULD BE RECOGNISED ONLY WHEN OBLIGATION IS MET .
- REVENUE RECOGNITION IS SAME LIKE ACCRUAL CONCEPT .
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