On 1 January, Erin, a manufacturer of fine furniture, entered into an agreement with a customer to make a chair that was to be made to meet the unique specifications of the customer. The customer paid a $20 deposit on the chair at that date. Erin finished making the chair on 31 January. The customer took delivery on that day, and agreed to pay Erin the outstanding balance of $3860 in two instalments on 28 February and 31 March. When would Erin normally recognise the revenue as having been earned, from a historical cost accounting perspective?
A) 1 January
B) 31 January
C) 28 February
D) 31 March

Question

Quizplus · Accepted Answer

According to the historical cost accounting perspective, revenue should be recognized when the goods or services have been delivered or completed, and the customer's obligation to pay is certain. In this case, the chair was completed on 31 January, and the customer took delivery on that day, therefore, the revenue should be recognized on 31 January. The $20 deposit received on 1 January is not recognized as revenue, but rather as a liability until the work is completed.

On 1 January, Erin, a Manufacturer of Fine Furniture, Entered