In July, Telly-Rental sells a home theatre for $1,000 on an installment basis. Telly-Rental generally earns a gross margin of 25%. The customer pays $500 in December. How much revenue is recorded by Telly-Rental in December?

Question

Quizplus · Accepted Answer

Revenue is recognized when it is earned, regardless of when the cash is received. In this case, the entire $1,000 from the sale of the home theatre is recognized as revenue in December when the sale occurs, not just the $500 received.

In July, Telly-Rental Sells a Home Theatre for $1,000 on an Installment