Question

An entity had cash receipts from sales of US $175,000 during Year 2. At the end of Year 1, the company had US $40,000 of deferred revenue, all of which was earned in Year 2. The company’s sales revenue for Year 2 would be:__________

Answer 1

US $135,000

Step-by-step explanation:

In accrual accounting, amount collected in advance are recognized as a liability until the revenue is earned.

Entries are posted as a debit to cash account and the corresponding credit to the deferred revenue account upon collection of cash.

Given that the entity had cash receipts from sales of US $175,000 during Year 2 but had a deferred revenue of US $40,000 as at the end of year 1, this means that the US $40,000 was part of the US $175,000 settled by the customer in year 2

Therefore, the company’s sales revenue for Year 2 would be

= US $175,000 - US $40,000

= US $135,000