Question

Otto’s Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?

Answer 1

August 31.

Step-by-step explanation:

The revenue recognition principle guides accountants when to record revenues and the amount of revenue to record. Recording in accounting means to make an entry in the journal.

According to revenue principle, accountants should record revenue when it has been earned. This means when the service is provided, when the product is delivered, when company has completed the sale agreement (earnings process is complete).

The amount of revenue that should be recorded, is the value of the service or product transferred to consumer.

In this case, Otto services a car on August 31.