Accounting - This is useful when you go to recognize the...

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Drew S’Renco Acct 3103 February 12, 2008 Case 04-7 (Lighthouse) The first alternative for recognizing revenue of a sale is to split the revenue of selling the device and providing the service. This alternative is very useful from the fact that they can be treated as two separate entities. There is the possibility of the device being returned so it makes it easier to account for when it is separate from the service. Another possibility would be depreciation on the device. If the device is returned but has been used then depreciation needs to take place. Also, the company receives payment of the device just one time. The service is provided on a month to month basis and is recognized month to month. The second alternative for recognizing revenue of a sale is to recognize both the device and the service provided together.
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Unformatted text preview: This is useful when you go to recognize the revenue because you only are concerned about one item instead of two. For accounting purposes, it is easier to recognize one revenue or sale rather than recognizing two from the same business transaction in a month. The proper way to recognize the revenue is the first alternative. One is supposed to keep the device and service separate because they are two separate sales. The device is its own sale that occurs once and service is its own sale that occurs monthly. Another reason why this method is best is because the device might be returned at a fifty percent refund but the service is nonrefundable. If one were to have combined the device and service then it would be harder to refund the device without subtracting from service revenue....
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