Revenue – Exam Prep Question

Page 87 of the notes, exam preparation question “Alex Co”

Could you please explain the journal entry that Alex Co would have passed on 31/12/x7 or on 30/06/x8?

The question says that the directors want to put $2m in revenue and $2m in Debtors for the year ended 30/6/x8. That’s okay but the sale was of $4m, when the payment comes in on 31st Dec X9 the debtor account has to be at $4m.

So how do the journal entries add up?

on 31st December X7 what was the journal entry? Was it –

Debtor A/c Dr. $4m
To Revenue A/c Cr. 3,809,524 (4m/1.05)
To Finance Costs A/c Cr. 190,476

But if that were to be the case, how can the directors just chose to recognize only 1,809,524 in Revenue that year?

By the logic of the question the entry seems to be

Debtor A/c Dr. $2m
To Revenue A/c Cr. 1,809,524
To Finance Costs A/c Cr. 190,476

But then what happens to the remaining 2 million? And the finance costs don’t add up to the discounting of 5%?

Could you please clarify what the journal entries would be from start to finish?

Best regards.

P.S. The teacher is amazing, love his jokes and the way he keeps us accountable by asking us if we paused the video to solve the sum again and again