question archive In the month of March the Digby Corporation received and delivered orders of 159,000 units at a price of $15
In the month of March the Digby Corporation received and delivered orders of 159,000 units at a price of $15
Subject:AccountingPrice:2.87 Bought7
In the month of March the Digby Corporation received and delivered orders of 159,000 units at a price of $15.00 for revenue of $2.385mil for their product Dug. Digby uses the accrual method of accounting and offers 30 day credit terms. By the end of May Digby had collected payments of $2.385mil for the March deliveries. How much of the collected $2.385mil should Digby show on the March 31st income statement and how much on the May 31st income statement?
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Answer:
Whole of the $2.385 million received by the end of May month must be recognised on March 31 Income Statement and there will be no recognition on May 31 Income Statement.
Step-by-step explanation
Since Digby uses accrual method of accounting therefore the revenue must be recognised in the month of credit sales and not in the month of Cash collection.
In the light of above, whole of the $2.385 million received by the end of May month must be recognised on March 31 Income Statement as this amount relates to the sales made in the month of March.
