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Hey there,
I had a doubt regarding the revenue recognition.
We do know that the revenue must be recognized as and when the performance obligation gets satisfied. But what if we are getting paid in advance, at least a proportion of total, maybe as a deposit?
how do we treat that in our accounts?
I just had this in my mind since many days.
Also, can we expect something like these in our MCS exams?Forever grateful for your work!
LahariIt’s treated as a liability – money the organisation effectively “owes” the customer or client as goods or services not yet provided. Journal entries debit bank/cash, credit deferred income.
On recognition of revenue this reverses liability to extent that it is recognised- debit deferred income, credit revenue. Hope this helps.
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