CFA Practice Question
At the end of a fiscal period, any revenue that has been earned but not received should be credited to an appropriate ______.
A. revenue account
B. asset account
C. liability account
Explanation: Revenue should be recognized in the period in which it is earned and credited to the appropriate revenue account.
User Contributed Comments 10
| User | Comment |
|---|---|
| timspear | Doesn't it also get credited to net recievables under current assets on the balance sheet which is presumably an asset account? |
| iroy | The question asks which account gets 'credited', it's revenues, the receivable account would be a debit entry, not a credit. |
| lemec | remember: with assets debit means to add and with liablities credit means add |
| vivi2005 | the question is a/r is asset account in balance sheet, but it will be 'credit' (add) to revenue in the income statement as well. it does not make sense that the amount should be 'debit' to asset account as lemec said, since it is meanless for 'debit' or 'credit' to an income statement entry. so I think credit here simply and only means add, which means both a and b have some reason to be chosen. |
| jonaszam | Assets=Liabilities + Stockholders Equity Assets include receivables which is debit(add). Stockholders equity includes retained earnings or Revenue account which is a credit(add). |
| anricus | When we have a sale on credit we Credit Sales (Income statement) to recog revenue Dr Receivable (Bal sheet) to recognise the asset since a non cash sale. Therefore B is not correct! |
| peteypete | DEBITS equal CREDITS! learned this in grade 8 |
| moneyguy | good for you, petey! |
| Friso | Revenue earned but not received sounds as Accounts receivable to me, so I would expect a debit to Accounts receivable (and offsetting increase in retained earnings after inventory adjustments, taxes, etc). Who agrees/why am I wrong? |
| cfastudypl | You are wrong Friso, the question only asks for the recognition of unrecorded earned income and even makes it clear that it is a credit account, which makes it the revenue acct. Of course, after the recording in the revenue acct, there will be a corresponding recording in the receivable accts to confirm to the double entry principle of DR = CR, but that is not the demand of the question. I hope you find it helpful. |