A furniture builder accepts a purchase order from a client to build a customized dresser. The acceptance of this contract on that date is executory in nature and the builder must thus record a liability on that date.

Question

Quizplus · Accepted Answer

An executory contract, such as the one described, involves obligations that both parties have yet to perform. The builder does not record a liability upon acceptance of the contract but will recognize revenue and related expenses as the work progresses or upon completion, depending on the accounting policy adopted.

A Furniture Builder Accepts a Purchase Order from a Client