Understanding Service Fee Revenue Recognition
How should Justice Company record the service fee revenue?
a. DR Cash $15,000, CR Fee revenue $15,000
b. DR Cash $12,000, CR Fee revenue $12,000
c. DR Cash $7,500, CR Fee revenue $7,500
d. DR Cash $6,000, CR Fee revenue $6,000
Answer:
The correct answer is:
b. DR Cash $12,000
CR Fee revenue $12,000
This is because Justice Company incurred a cost of $12,000 to supply the service, and the service fee received from the joint operation is recorded as revenue. Therefore, the cash received should be recorded as a debit to the Cash account and the revenue should be credited to the Fee revenue account.
It's important to accurately record revenue to reflect the true financial performance of the company.
By following proper accounting principles, companies can ensure transparency and accountability in their financial reporting.