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Revenue recognition

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Dolly

Job

25 Points Joined July 2011

Hi ,

I want to know accounting entries for one scenerio-

As on 31.01.2017 Company ABC received a contract for delivery of parcels for one year and received rs.120000 in advance for that.

Conditions of the contract is delivery of upto 100 parcel in the month no extra charges and above this rs.150 per parcel .

ABC delivers 80 parcelsc in Jan'17, no parcels in Feb'17 and 130 parcels in March'17. There books of accounts ends in Dec'17.

What would be entry on month on month basis and at the year end.

Replies (1)

Jouhar Ali

Article

126 Points Joined October 2015

1. On receipt of advance

Cash A/c Dr 120000

To XYZ A/c 120000

(Being advance from XYZ shown as liability)

2. At the end of each month

XYZ A/c Dr 10000

To Service Income A/c 10000

(Being accrued income)

Note:- here entire liability-XYZ is transferred to service income equaly over 12 month(i.e 10000). In case of delivery below 100 or zero delivery NO additional entry will be required. However for months exceeding delivery of 100 following additional entry will be required

i.e for march

Cash A/c Dr 4500(30*150)

To Service Income A/c 4500(30*150)

(Being additional income)

3. At end of year

Service income A/c Dr 110000

To P&L A/c 110000

(Being closing entry)

Note:- Balance liability of 10000 will be there and 2nd entry to be passed in next January