Recognizing revenue when advance billing

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Reference no: EM132188999

1) Recognizing revenue when advance billing is made is a little risky. Estimated costs are subject to change which can throw off the revenue. You also do not know if you'll actually receive the revenue. On the other hand the method has been followed for years and have been effective.

2) Recognizing revenue when the payment is received from the client is an accurate way of recording the revenue. Adjusting journal entries wouldn't have to constantly be made and estimated billings wouldn't have to be done.

3) Recognizing revenue in the month when the advertising appears in the media could have the revenue fluctuate. When the agency draws up a contract with the customer the customer could want the ad to appear a month from now or a year from now.

4) Recognizing revenue when the bill for advertising is received would put the revenue a month behind. The good point about this method would be that it is recognizing its costs related to earning the revenue from the contract.

Out of all the ways of recognizing revenue I would recognize revenue at the time advance billing is made because this business earns most of its revenue with contracts that take time to pay off. They only most likely receive a small deposit of cash to put towards the contract when it is started. It has worked for them for many years now and they seem to have a very straight forward pattern down.

Reference no: EM132188999

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