Question

A company sells goods on credit in January, but the customer doesn't pay until February. Which Month should the company recognizethe revenue and expenses? Create a journal entry for both January and Febraury.

Answer 1

The company should recognize the revenue in January, when the goods were sold, and recognize the expenses in the same period, even though the customer does not pay until February. This follows the accrual accounting method, which recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash is exchanged.

Journal entry for January:

Accounts Receivable [Debit]

Sales Revenue [Credit]

Journal entry for February:

Cash [Debit]

Accounts Receivable [Credit]

Step-by-step explanation: