hard · Financial Accounting accounting-cycle-financial-statements
A company records a $90,000 cash sale on December 30, Year 1, but the related goods are not shipped until January 4, Year 2 (FOB shipping point, and the customer can cancel any time before shipment). Cost of the goods is $54,000. In closing Year 1, the bookkeeper credited Sales Revenue $90,000, debited Cash $90,000, and made no other entry.
Ignoring the cash receipt itself, which single correcting entry at December 31 most faithfully states Year 1 results and financial position?
- Debit Sales Revenue $90,000 and credit a contract (refund) liability $90,000, leaving inventory on the books
- Debit Sales Revenue $90,000, credit Deferred Revenue $90,000, debit Cost of Goods Sold $54,000, and credit Inventory $54,000
- Debit Sales Revenue $36,000 and credit Inventory $36,000 to defer only the unearned gross profit portion
- Make no entry because cash was received and the earnings process is substantially complete at year-end
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