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Please tell me the initial entry for this information;
(1) On September 15, 2009, received $3,600 cash from a corporation that sponsors a game each month for the most improved student attending a nearby school. The $3,600 was for nine game on the first Friday of each month starting October 1, 2009.
(2) During the year, sold $1500 of gift certificates. Determined that on December 31, 2009, $475 of these gift certificate had not been redeemed.
They're both deferred revenue and would have gone into the liability account. Your job is figuring out what portion has been earned as of 12/31, so that you can remove it from the deferred revenue and put it in the revenue.
Let us first get some things straight:Quote:
Originally Posted by dobembe
(1) It is not clear as to the status of the entity involved. The accounting treatment will surely be based on the entity involved.
(2) In the first case, an entity has received some money that is required to be distributed to a deserving student. Therefore the receipt does not fall into a category of revenue for the receiving company. The receiving company is just acting as an intermediary. Hence it is a liability for the receiving entity.
(3) In the second case the reporting entity has issued gift certificates thereby creating an obligation to sacrifice some inventory to the holder of the gift certificate. This is a liability in terms of IAS 37.
It doesn't say it's going to be distributed to a deserving student. It merely says the corporation is going to pay for it. The fact that it's a sponsorship coming from a corporation makes no difference. I suspect it's still revenue.Quote:
(2) In the first case, an entity has received some money that is required to be distributed to a deserving student. Therefore the receipt does not fall into a category of revenue for the receiving company. The receiving company is just acting as an intermediary. Hence it is a liability for the receiving entity.
Granted, we don't know what this company does. However, it looks like homework, and I suspect the point is to just figure out what portion has been earned for an adjusting entry. If it's just basic adjusting entry homework, over-thinking it usually just creates problems.
I admit my English is not as good but my suggestions are based on simple reading of English.
On an analysis it appeared to me:Quote:
(1) On September 15, 2009, received $3,600 cash from a corporation that sponsors a game each month for the most improved student attending a nearby school. The $3,600 was for nine game on the first Friday of each month starting October 1, 2009.
1. An entity has received cash $3,600 on September 15, 2009
2. The amount has been paid by a corporation
3. The corporation sponsors a game each month
4. The amount is for the most improved student
5. The amount is to be spread over nine months
Again, I am not as experienced in accounting, but I could not complete the double entry to fit the transaction in the basic elements of financial statements - assets, liabilities, equity.
Granted that Cash is an asset, but what is the other part of the transaction? The entity that received the money must establish earnings process to be classified as a revenue - whether earned or unearned.
The receiving company has an obligation to distribute the money as per the instructions of the corporation that paid the money. I would consider this obligation as a liability.
You're assuming there's no revenue and your first post seemed to assume that the money is going to the student. There is nothing in the statement that says it's going to be given away to the student, as your first post implied. "For" the student doesn't mean it goes to the student. It's probably "held for" the student. Therefore, something would be getting paid for, not just passed through the company to someone else.Quote:
Originally Posted by rehmanvohra
Even though it's not stated (at least not in this post) what the company does, likely this is what they do, and someone else is just paying for it. i.e. like me buying you a meal at a restaurant -- it's for you, I pay for it, and the restaurant still does their normal job they usually do and earn revenue, cause it doesn't matter whether you pay your own meal or I pay for it.
This is just a typical intro adjusting entry type problem -- tickets over a series of games, of which x number take place this year, etc. I've seen it a lot. (Maybe not as a sponsorship but I've seen it.) The other thing about the gift certificates another typical one. Which says to me, the problem is about adjusting entries. And adjusting entries are about recognizing revenues and expenses. It therefore stands to reason that is what this is. They just want the student to figure out how much of it has been earned based on any number of games taking place this year.
You are over-thinking it and making an issue of a beginning level problem. And you can give me a big fat red circle if you find the problem and prove me wrong.
On a plain reading of the first line of the post which states.Quote:
Please tell me the initial entry for this information
I think the member wants INITIAL entry and not the adjusting entry.
The fundamental recognition principle states that:
An item and information about it should meet four fundamental recognition criteria to be recognized and should be recognized when the criteria are met, subject to a cost-benefit constraint and a materiality threshold. Those criteria are:
—Definitions. The item meets the definition of an element of financial statements.
—Measurability. It has a relevant attribute measurable with sufficient reliability.
—Relevance. The information about it is capable of making a difference in user decisions.
—Reliability. The information is representationally faithful, verifiable, and neutral.
(Statement of Financial Accounting Concepts No. 5)
The same concept statement further defines:
Guidance for recognizing revenues and gains is based on their being:
—Realized or realizable. Revenues and gains are generally not recognized as components of earnings until realized or realizable and
—Earned. Revenues are not recognized until earned. Revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. For gains, being earned is generally less significant than being realized or realizable.
I am sure that the students must be taught about these concepts before they go deep into the nitty gritty. How can you teach accounting principles without dealing with these concepts?
I am not interested in giving you a big fat red circle nor in proving you are wrong.
[QUOTE=rehmanvohra;2285527]The POSTER may have wanted to know the initial entry because it would help in getting the adjusting entry.Quote:
On a plain reading of the first line of the post which states .
I think the member wants INITIAL entry and not the adjusting entry.
What I'm trying to say is that I see these exact kinds of things commonly in a chapter on adjusting entries, doing adjusting entries. What the problem is looking for, and what the poster might decide they want (that may not be relevant) could be two different things. It doesn't change what I suspect the problem is about. If it's about unearned revenue, then perhaps it helps the student to know how it was initially recorded, so they ask.
I didn't even bother to read the rest of your post because I don't need to read the rules on what makes something revenue. I'm not arguing that. You don't have any proof that there isn't revenue here -- you're arguing that it's not revenue, when the statement is not saying anything about whether there's revenue or not. It doesn't say at all.
I am trying to look at it within the context of the types of problems that show up in principles books and this is a type of thing I see a lot in chapters on adjusting entries. Yes, I'm making an assumption about that, but it's a more logical assumption than the one you're making. There's probably a paragraph above the whole thing stating what this company does, and 10 to 1 it says they do games for their revenue. Neither of us sees that paragraph cause OP didn't post it. But my assumption is an educated guess based on years of looking at typical problems in principles books. Your assumption is based on your insistence on ripping everything into overly-technical pieces at some level 4 years beyond where the student is.
I sometimes have to wonder if you remember being a first-year student?
Well so much for your expertize as a great teacher of 15 years standing
It's my 15 years of experience that makes my interpretation more logical than yours, because I recognize "book" stuff... for a first year student, sometimes that is more important than all the technical rules you are so fond of.
You really just DO NOT get it. And you are SOOOOO wrong. And no, I'm not being arrogant. It's just so obvious from where I'm sitting. You don't get first-year students. You don't get real life. All you get is your technicalities that sometimes just have no place. The stuff you know is useful when we have a more complicated, advanced issue, or for more advanced students -- because that is stuff I've forgotten because I don't use it in real life. (Just providing more proof that in real life we just don't use a lot of that stuff - I haven't forgotten it cause I'm an idiot -- I've forgotten it cause so much of it just doesn't get used. Some day when you're in the real world you'll figure that out.)
You think I'm the arrogant one, but I stay away from that stuff and let you do it, cause I know where I don't belong. You just haven't figure out yet where you don't belong. I fully recognize the knowledge you have -- you just need to figure out when it does and does not apply. You're just where you're at and don't seem to recognize anything else.
Sorry to burst your little bubble, but that's just the way it is, and I'm more than a little fed up with the whole thing.
The feelings are mutual
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