Question

During 2019, Pacific, Inc. (PI) had the following transactions with its clients (customers).

1. Feb 1, 2019 PI received cash of $6,400 from clients in payment of their account balances from Dec 31, 2018.

2. On Nov 1, 2019, PI received $3,400 cash as payments in advance for services to be performed in 2020.

3. PI received a total of $20,000 in cash for services that were performed in 2019.

4. PI sent bills totaling $5,400 to customers for services performed during 2019; this amount was unpaid as of Dec 31, 2019.

What is the amount of Service Revenue that will be reported on the accrual basisincome statement for the year 2019?

Question 4 options:

	$35,200
	$25,400
	$31,800
	$28,800

Answer 1

According to the Accrual Basis of Accounting, All the Income which are relating to the period of the prepartion of Books shall be accounted as Earned in the same period, even though they are not actually received. In short, If the Amount is Earned it is accounted as Revenue, even though it is not yet received.

Based on the above explanation, the Revenue that will be reported on Accrual Basis Income Statement for the Year 2019 is as follows :

1. It is earned in the Year 2018 and it is received in the Year 2019. So, it is not considered as Revenue for Year 2019.

2. For the Revenue to be considered as Earned, it shall be actually provided to the Customer. So, Advance received for the services to be performed in Future will not be considered as Revenue for the Year 2019.

3. Since, the amount of $ 20,000 is received for the services performed in 2019, it is considered as Revenue for 2019.

4. Even though, the amount is not actually received, it will be considered as revenue because, the service is actually performed and the company has earned the amount.

Therefore, the Amount of Service Revenue to be reported on Income Statement of Year 2019 is $ 20,000 + $ 5,400 = $ 25,400 (Option - B).