Midwest Advertising Agency handles advertising for clients under contracts that require the agency to develop advertising copy and layouts, as well as place advertisements in various media. The agency typically charges clients a commission of 15% of the media cost. The agency makes advance billings to its clients of the estimated media cost plus its 15% commission. Adjustments to these advances usually are small.
Frequently, both the billings and receipt of cash from these billings occur before the period in which the advertising actually appears in the media. A conference meeting is held between officers of the agency and the new firm of Certified Public Accountants (CPAs) recently engaged to perform annual audits. In this meeting, consideration is given to four possible points for measuring revenue:
The agency has been following the first method for the past several years, on the basis that a definite contract exists and the revenue is earned when billed. When the billing is made, an entry is prepared to record the estimated receivable and liability to the media. Estimated expenses related to the contract are also recorded. Adjusting entries are made later for any differences between the estimated and actual amounts.
As a member of the CPA firm attending this meeting, how would you react to the agency’s method of recognizing revenue? Discuss the strengths and weaknesses of each of the four methods of revenue recognition and indicate which one you would recommend the agency follow. Explain the reasons for your choice.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more