gains a client who prepays $ 450 for a package of six physical training sessions. Body Fitness collects the $ 450 in advance and will provide the training later. After four training sessions, what should Body Fitness report on its income statement assuming it uses the accrual basis accounting method?

Question

Business

Hayden Friedman

26 March, 06:51

gains a client who prepays $ 450 for a package of six physical training sessions. Body Fitness collects the $ 450 in advance and will provide the training later. After four training sessions, what should Body Fitness report on its income statement assuming it uses the accrual basis accounting method?

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Answers (1)

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Khalil Douglas · Answer 1

A revenue of $300

Explanation:

When a client pays in advance, the revenue is yet to be earned hence a debit entry is posted to cash and a credit to deferred revenue. Once revenue is earned, debit deferred revenue and credit revenue.

If $450 was paid in advance for 6 sessions, after 4 sessions,

Revenue earned = 4/6 * $450 = $300

This will be recognized by debiting deferred revenue and crediting revenue. Hence the income statement would show a revenue of $300.