Solve Some Revenue Recognition Journal Entries Example

 Welcome back to our accounting blog today we are going to solve the revenue recognition journal entry example. This topic is very important from an accounting point of view so if you are an accounting student then you should read this post till the end.

What is Revenue Recognition in Accounting?

This method helps to determine when and how revenue should be recorded in a company's financial statements.

Now you know the basic definition and what Revenue Recognition works now let's start to solve the example.

revenue recognition journal entry example

Let's say a company sells a product for 1,000 INR on credit to a customer (A process like buy now pay later). The product has been delivered, and the company expects to collect the payment in the future. Here's how you might record the revenue recognition journal entry:

Assuming Accrual Basis Accounting:

When the sale occurs (products are delivered):

• Debit: Accounts Receivable (or Trade Receivables) 1,000

• Credit: Sales Revenue 1,000

In this entry, as you can see the company hasn't received the cash yet but revenue of 1000 INR has been recorded (At the time of sale)

When the customer pays the money:

• Debit: Cash $1,000

• Credit: Accounts Receivable $1,000.

In this entry, cash is collected and the accounts receivable balance is reduced when payment is received.

Note:- You must remember that revenue will be recognized after the cash is physically received,, not when the sale occurs.

• When the cash is received from the customer:

Debit: Cash $1,000

Credit: Sales Revenue $1,000

Conclusion

Here in this post, we add a revenue recognition journal entry example for all accounting students so if you want to know how to use revenue recognition then you should read this post till the end.