On June 28, Bronnie's provided consulting services to Maisie Company. Bronnie's billed Maisie on July 2 for $800 related to these services. On July 5, Maisie paid the invoice in full. Bronnie's only cost related to this sale was $250 in Salaries Expense. Bronnie's paid the salaries on July 3. Assuming Bronnie's Company has a June 30 year end, the company's profit for the Maisie's job on the June 30 financial statements should be
A) 0.
B) $800.
C) $550.
D) $250.

Question

Quizplus · Accepted Answer

Based on the revenue recognition principle, revenue should be recognized when earned, which is when the consulting services were provided on June 28. The invoice on July 2 is just a formal document to request payment. Therefore, $800 of revenue should be recognized.

The cost of the sale is the $250 in Salaries Expense, which should be recognized on July 3 when it was paid.

Therefore, the profit for the Maisie's job on the June 30 financial statements should be $800 - $250 = $550.

On June 28, Bronnie's Provided Consulting Services to Maisie Company