Page 45 - cfi-Accounting-eBook
P. 45
The Corporate Finance Institute Accounting
Journal entries for the revenue recognition principle
Typical journal entries would look like:
• DR Cash
• CR Deferred Revenue
• DR Deferred COGS
• CR Inventory
Instead of crediting revenue and debiting COGS, deferred revenue
and deferred COGS are used. When revenue can be recognized these
deferred accounts are then closed to actual revenue and COGS:
• DR Deferred Revenue
• CR Revenue
• DR COGS
• CR Deferred COGS
Installment Sales Method and the revenue recognition principle
Installment sales are also quite common where products are sold on
a deferred payment plan where payments are received in the future
after the goods have already been delivered to the customer. Under
this method, revenue can only be recognized when the actual cash is
collected from the customer.
Example:
In May, XYZ Company sold $300,000 worth of goods to customers on
credit. In June, $90,000 was collected and in September, $210,000 was
collected. The COGS is 80%. Using the installment sales method, the
journal entries would be:
May:
DR Instalment Accounts Receivable 300,000
CR Deferred Revenue 300,000
DR Deferred COGS 240,000
CR Inventory 240,000
corporatefinanceinstitute.com 45
