Quick Accounting Question

[Justin]

I am working on a project and am stuck on one journal entry.

On March 20th LTC received an "on account" order and immediatly shipped the merchandise totaling $1000. The order will arrive at the purchaser on April 7th. The goods were shipped "F.O.B. destination" -meaning that they are not considered sold until they arrive on April 7.


So for the March 20 journal entry i have so far:

dr Accounts Receivable 1000
cr Unearned Sales Revenue 1000

Do I include:

dr Cost of Goods Sold 500
cr Inventory 500

[B40]

The goods were shipped "F.O.B. destination" -meaning that they are not considered sold until they arrive on April 7.

Do I include:

dr Cost of Goods Sold 1000
cr Inventory 1000

Since they are not considered sold, they are still part of your inventory until arrival (Apr 7). You do not include it, but on Apr 7 with they arrive you enter that entry. On the same date you would also transfer unearned revenue into revenue.

I believe this is correct, but not 100% sure.

[Justin]

Since they are not considered sold, they are still part of your inventory until arrival (Apr 7). You do not include it, but on Apr 7 with they arrive you enter that entry. On the same date you would also transfer unearned revenue into revenue.

I believe this is correct, but not 100% sure.

Thanks. Thats what I was thinking. If the transaction was not FOB then would I include the second step?

[Jabb]

Since they are not considered sold, they are still part of your inventory until arrival (Apr 7). You do not include it, but on Apr 7 with they arrive you enter that entry. On the same date you would also transfer unearned revenue into revenue.

I believe this is correct, but not 100% sure.

^^^^^^^^^^he's a laurier grad, listen to him

[sammy]

I am working on a project and am stuck on one journal entry.

On March 20th LTC received an "on account" order and immediatly shipped the merchandise totaling $1000. The order will arrive at the purchaser on April 7th. The goods were shipped "F.O.B. destination" -meaning that they are not considered sold until they arrive on April 7.


So for the March 20 journal entry i have so far:

dr Accounts Receivable 1000
cr Unearned Sales Revenue 1000

Do I include:

dr Cost of Goods Sold 1000
cr Inventory 1000

Haven't been in pure accounting in a long time and my text books are still packed. I don't think you would have any journal entry on March 20. I don't think there is any unearned revenue unless the company received money before the sale. When the revenue is realized/realizable and earned, ie, Apr 7, record the rev and COGS. Check your text book again.

[gretzky99]

March 20 :

dr Accounts Receivable 1000
cr Inventory 1000


Apr. 7:

dr Cost of Goods Sold 1000
cr Revenue 1000

[Justin]

I guess I better ask my prof tomorrow. Seems everyone has a different answer. There is nothing like this in my text book, so that is why I asked here. I'll post the correct answer tomorrow.

[batman321123]

I don't think you do anything on March 20.

[Justin]

I don't think you do anything on March 20.

Correct. Talked to my prof today. Nothing happens on the 20th

[charliebrown]

for rev rec, always check RCMP:

Risk & Reward transfer
Collectibility
Measurability
Performance

If 3/31 = F/S period, there'd be incentive to recognize the sale early, but u cant.

[CHINAdeals]

Correct. Talked to my prof today. Nothing happens on the 20th

what's the final answer then?

[natefive]

what's the final answer then?

Apr 7
dr Accounts Receivable 1000
cr Sales Revenue 1000

dr Cost of Goods Sold 500
cr Inventory 500

[Capt.]

Classic revenue recognition problem. If you followed Gretzky's advice, the company would never make any profit

[sammy]

Correct. Talked to my prof today. Nothing happens on the 20th

good to know that my memory on this stuff is correct.

[Bullseye]

Intermediate Accounting 1? Or as CGA would call it, Financial Accounting 2.