In: Accounting
Omega Coffee Shop enters into a contract with Software Wizards
Co. on May 15, 2020, to deliver 100 bags of ground coffee beans to
Software on June 1. Software agrees to pay $1,000 for the coffee
beans, which cost Omega $6 each. Omega delivers the bags of coffee
beans on June 1, 2020, and receives payment from Software on June
20, 2020.
Prepare the journal entries for Omega Coffee Shop related to this
contract.
This is a case of a revenue recognition concept which is a generally accepted accounting principle (GAAP) according to which revenue is recognized (or recorded in books) only when the corresponding event occurs. In this question, Omega Coffee Shop will recognize its revenue of $1000 only when it delivers the 100 bags of coffee beans to Software Wizards Co.
The required journal entries for Omega Coffee Shop related to this contract are as follows:
Notes: