Expert: Ed McFarland - 1/8/2007

Question

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The text above is a follow-up to ...

-----Question-----
I would like to verify your answer provided to the AllExperts 6/21/2004 question regarding Accounts Receivable and Sales Revenue recognition for a bridal boutique. Use the same facts as that example. The question is: Is the sale of a bridal gown recorded on the date the sale contract is signed and deposit received or on the date the bridal gown is shipped/picked up?

Your answer was a sale is recorded on the date the customer signed the contract. Shouldn't revenue be recognized when the product has been delivered?
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You would recognize the revenue when it was received.

The original entry would have created the sale and a liability for the deposit and a receivable for the balance due. When the payment came in it would clear the receivable and the deposit.

Good luck

---------Follow-up Question------------------

I do not understand what is meant by "recognize revenue when it was received."

The original entry creates a sale on the books and this shows up as revenue in the P&L. This recognizes revenue on the recording of the original entry on the financial statements and NOT at the time when the final customer payment comes in? Is this correct?

Thank you for your help in this matter.  

Answer
Follow the entries in the second line:

The original entry would have created the sale and a liability for the deposit and a receivable for the balance due. When the payment came in it would clear the receivable and the deposit.

I think in the original question there was another issue, I haven't got the time to go back and look it. But for what you are asking about, yes the revenue is recognized when the sale is put on the books.

Good luck