Question

gains a client who prepays $ 450 for a package of six physical training sessions. Body Fitness collects the $ 450 in advance and will provide the training later. After four training​ sessions, what should Body Fitness report on its income statement assuming it uses the accrual basis accounting​ method?

Answer 1

A revenue of $300

Step-by-step explanation:

When a client pays in advance, the revenue is yet to be earned hence a debit entry is posted to cash and a credit to deferred revenue. Once revenue is earned, debit deferred revenue and credit revenue.

If $450 was paid in advance for 6 sessions, after 4 sessions,

Revenue earned = 4/6 × $450 = $300

This will be recognized by debiting deferred revenue and crediting revenue. Hence the income statement would show a revenue of $300.