Argyle Designs has entered into a contract to design 10 new dresses for a customer. It will collect a total of $49,000 after the design services are complete. Argyle started design work on June 1. As of June 30, it finished 2 of the 10 designs. The company will make an adjusting entry at the end of June to accrue $12,250 of service revenue. True / False.

Question

Sarge

Business

7 June, 04:20

Argyle Designs has entered into a contract to design 10 new dresses for a customer. It will collect a total of $49,000 after the design services are complete. Argyle started design work on June 1. As of June 30, it finished 2 of the 10 designs. The company will make an adjusting entry at the end of June to accrue $12,250 of service revenue. True / False.

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Thomas · Answer 1

False

Explanation:

The reason is that accrual concept says that the income must only be realized when the revenue are earned which means that the company has delivered her consideration (The part of the service that is delivered to the customer which has monetary value). So the income earned is equal to the monetary value of the two suits they had designed till June 30. So the double entry would be:

Dr Revenue accrued 49000/10suits * 2 suits = $9800

Cr Trade Receivables $9800

So saying that the service revenue of $12,250 must be accrued is totally false statement.