- 985-605 talks about the revenue recognition for the company. The arrangement agreed between Coconut and Buffet comes under the scope of ASC 985-605 because the software used with the hardware is not incidental and, is necessary for the tangible product to function well and hence it is necessary for the functionally of the user interface and consoles and hence it comes under the scope of financial regulations provided in ASC 985-605.
- According to the revenue recognition principle only the used up revenue of the service provide is added into the sales of company, and the rest of the revenue is taken to advance revenue. In this case, only the month of which services have been used can be taken by the company to their sales, whereas the rest will come into the balance sheet as liabilities as accounts payable.
Calculation:
On Feburary 1, 2012:
Since, the software is taken at upfront payment, the entire amount will go to the asset of the company.
For PCs, the following entry will be made:
Cash 2000
Unearned Revenue 2000
In the month of following month, the entry will be:
Unearned Revenue 166.67
Revenue Realized 166.67
On April 30, the following will be the condition of recognized and deferred revenue:
Deferred Revenue = 2000 + (2000-166.67*2) = 1666.67
Earned/Recognized Revenue = 166.67 * 2 = 333
Works Cited:
U.S. GAAP Codification of Accounting Standards Guide by AccountingINFO.com." U.S. GAAP
Codification of Accounting Standards Guide by AccountingINFO.com. N.p., n.d. Web. 19
Oct. 2014
"Revenue Received in Advance Journal Entry « Double Entry Bookkeeping." Double Entry
Bookkeeping. N.p., n.d. Web. 19 Oct. 2014
