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13 November, 15:26

On November 1, 2021, Green Valley Farm entered into a contract to buy a $150,000 harvester from John Deere. The contract required Green Valley Farm to pay $150,000 in advance on November 1, 2021. The harvester (cost of $110,000) was delivered on November 30, 2021. The journal entry to record the contract on November 1, 2021 includes a

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  1. 13 November, 15:45
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    The multiple choices are missing from the question as shown below:

    credit to Accounts Receivable for $150,000

    credit to Sales Revenue for $150,000.

    credit to Unearned Sales Revenue for $150,000.

    debit to Unearned Sales Revenue for $150,000.

    The correct option is credit to unearned sales revenue of $150,000

    Explanation:

    The accrual concept of accounting used by professionals the world over, requires that revenue be recognized when the seller has discharged his obligations to the buyer, that when goods are delivered to the buyer.

    However, the upfront of receipt of cash by John Deere cannot be termed sales since the obligation of delivering harvester has not been fulfilled, as a result the amount received would termed unearned sales revenue, a liability until the delivery takes place.

    The appropriate entries are:

    Dr Cash $150,000

    Cr Unearned sales revenue $150,000
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