Question

1. Under which condition a firm can recognize its sales?

Select one:

a. Seller has executed substantially all the requirements of the agreement

b. The risk of the product has passes

c. Revenue must be earned by transferring the risk and fulfilling the agreement, and Revenue must be realized or realizable

d. Received cash or cash equivalent

2. When the firm received a notice from a customer that he is not able to make the payment, the firm decides to write off the accounts receivable. Which one should be the correct journal entry?

Select one:

a. Debit- Allowance for Uncollectible Receivables , Credit- Accounts Receivable

b. Debit- Bad Debt Expense, Credit- Allowance of Unclolletible Receivables

c. Debit- Bad Debt Expense, Credit- Accounts Receivables

d. Debit- Accounts Receivables, Credit- Allowance for Uncollectible Receivables

Answer 1

1. Answer is option C

Revenue must be earned by transferring the risk and fulfilling the agreement, and Revenue must be realized or realizable

Generally, revenue is recognized on delivery of goods as during the delivery of goods revenue is realized or realizable. Moreover other requirement of revenue recognition is the transfer of significant risks and rewards of ownership of the goods from seller to buyer.

2. Answer is option C

Debit- Bad Debt Expense, Credit- Accounts Receivables

The uncollectible bad debt expense reduces the amount of accounts receivable and thus accounts receivable is credited by that amount.