Gomez Company collected $9,000 on September 1, Year 1 from a customer for services to be provided over a one-year period beginning on that date. How much revenue would Gomez Company report related to this contract on its income statement for the year ended December 31, Year 1? How much would it report as cash flows from operating activities for Year 1?
A) Revenue of $3,000; Cash flow from operating activities of $3,000
B) Revenue of $9,000; Cash flow from operating activities of $9,000
C) Revenue of $3,000; Cash flow from operating activities of $9,000
D) Revenue of $0; Cash flow from operating activities of $9,000

Question

Quizplus · Accepted Answer

Revenue is recognized as the service is provided, so for four months (September to December), the revenue is $3,000 ($9,000/12 months * 4 months). However, the entire $9,000 collected is reported as cash flow from operating activities in Year 1, as it was received in that year.

Gomez Company Collected $9,000 on September 1, Year 1 from a Customer