In May, Just In Thyme, Inc. billed a customer $1,000 for services performed in May. In June, Just In Thyme collected the $1,000. Which of the following is true assuming accrual accounting?

Question

BlackTom AI · Accepted Answer

Under accrual accounting, revenue is recognized when it is earned, not when cash is received. Because the services were performed in May, the full $1,000 is earned in May and must be recorded then.

1. Relevant knowledge points and concepts
- Revenue recognition principle (accrual basis): recognize revenue when earned and realizable, irrespective of cash timing.
- Accounts receivable: asset recorded when cash is owed by a customer.
- Cash receipt later converts receivable to cash; it does not generate additional revenue.
- Matching principle: revenues should be matched with the period in which they are earned.

2. Step-by-step reasoning
- Services were performed in May, so May is the earning period.
- Under accrual accounting, record revenue in May and record the claim against the customer as accounts receivable.
- When cash is collected in June, remove the receivable and increase cash; do not record revenue again.

3. Complete journal entries (intermediate steps)
- In May (when services performed and billed):
  Debit Accounts Receivable $1,000
  Credit Service Revenue $1,000
  Effect: Income statement (May) reports $1,000 revenue; balance sheet shows $1,000 AR.
- In June (when cash collected):
  Debit Cash $1,000
  Credit Accounts Receivable $1,000
  Effect: Converts AR to Cash; no revenue effect in June.

4. Why the correct answer is correct
Recording $1,000 revenue in May reflects that the earnings process was complete in May. The June transaction only affects asset accounts (AR to Cash), so it does not change revenue recognition.

5. Why other options are incorrect
- "$1,000 of revenue should be recorded in June.": This is cash-basis accounting; it misstates May results and violates accrual recognition.
- "$500 of revenue should be recorded in May and $500 in June.": There is no basis for splitting revenue because the entire service was performed in May.

6. Conclusion
Therefore, $1,000 of revenue should be recorded in May, which matches the provided correct answer.

In May, Just In Thyme, Inc. billed a customer $1,000 for services performed in May. In June, Just In Thyme collected the $1,000. Which of the following is true assuming accrual accounting?单项选择题

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