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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Food To Go is a local catering service. Conceptually, when should Food To Go recognize revenue from its catering service?

a. At the date the meals are served

b. At the date the invoice is mailed to the customer

c. At the date the customer places the order

d. At the date the customer’s payment is received

To determine

Revenue recognition:

Revenue recognition is referred to the time of recognition of revenue by the business firms in the books for stating the respective revenue in the statement of profit and loss in the respective year and time.

To select:

The best time of recognizing revenue for Food To Go catering services.

Explanation

The revenue recognition is made at two different times which depends on the method of accounting, a business is following. In the cash-accounting method, the revenue is recognised at the point of receiving the cash and on the other hand, in the accrual-accounting method, the revenue is recognised at the point of sale i.e. when performance obligation is satisfied.

The catering services named Food To Go will recognise the revenue on the accrual-basis i.e. when the food is served which means the service is performed and the revenue is accrued for the services.

The revenue cannot be recognised at the date of the placement of order as that time the service has not been started from the caterer...

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