Answer the following question: On April 1, cash of $2,400 was received from a customer...
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Accounting
Answer the following question:
On April 1, cash of $2,400 was received from a customer for a 12-month service contract.
Prepare the journal entries, assuming the expedient method is used, to record the cash receipt on April 1 and the year-end adjustment as at October 31.
April 1 entry:
Dr Cash $2400
Cr Service Revenue $2400
October 31 entry:
Dr Service Revenue $1000
Cr Deferred Revenue $1000
Why do we do 2400 x (5/12) = $1000 instead of (7/12) when April 1 - October 31 is 7 months? Explain clearly.
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