[Peachey]

Am I on the right track, if not please help me: :confused:
A retailer earns a 10% commission on the sale of a $150,000 home. The realtor lists the home on June 5, the sale occurs on June 12 and the sellers pay the realtors the $15,000 commission on July 8. When should the realtor recognize revenue from the sale, assuming a) the cash basis of accounting and b) the accrual basis of accounting?

My working

June 12: Accounts Receivable... 150,000
Service Revenue... 150,000
To recognize revenue from selling house

July 8: Cash... 150,000
Accounts Receivable... 150,000
To recognize the time cash is collected, receivable is reduced and cash is increase.

[ArcSine]

First note that the realtor's revenue is the 10% commission; hence it's 15K and not 150K.

Your question, as written, isn't asking for JEs, but is only asking for the date on which the realtor should recognize the revenue, (1) if using the cash basis; and (2) if using the accrual basis.

Someone on the accrual basis recognizes revenue on the date that it's earned. If on the cash basis, the revenue is recorded on the date it's received. Both of those dates are clearly evident in the problem.

But since it'd be good for you to understand the JEs correctly, let's have a look at those. If revenue is being recorded on the cash basis, you'd debit Cash and credit Revenue. If on the accrual basis, the debit is to Accounts Receivable, while the credit is still to Revenue. (Of course, the accrual method would require a second JE later, when the money is actually received. For that, you'd debit Cash and credit AR.)

[Peachey]

OK I am very new at this:

July 8 Cash... 15,000
Revenue... 15,000

June 12 Account Receivable... 15,000
Cash... 15,000

June 12 Cash... 150,000
Account Receibvable... 150,000

[ArcSine]

Your first entry is correct for a realtor who is on the cash basis; the realtor is recognizing the revenue on the date that it's actually received.

But for the other two entries, a realtor on the accrual basis would need these two entries:

First, debit AR and credit Revenue on the date the revenue is earned.

Second, debit Cash and credit AR on the date the cash is collected.

And for some reason, you allowed that 150K amount to sneak back into one of your entries. The 150K is NOT part of the realtor's entries at any time.

To recap: A realtor on the cash basis needs just one entry, and your first entry is exactly the correct one.

A realtor on the accrual basis needs two entries, one to recognize the revenue when it's earned, and a later one to record the collection of the cash. So toss out your 2nd and 3rd entries, and replace them with the ones I've described here.

That ought to do it!

[Peachey]

OK I am trying this is the first time I am doing this:

Since the first entry is correct:
June 12 Accounts Receivable --15,000
Commission Revenue... 15,000
July 8 Cash ----------------------15,000
Account Receivable... 15,000

[morgaine300]

This is actually not the first time you've recorded revenue on account. The accrued basis is the same entries you have been doing for accrued revenues. Your original entry from your first post was correct for the accrued basis, except for the dollar amount. People have this bad habit of trying to rework the entire entry and messing it up when only one thing is wrong. Only the dollar amount was wrong.

You recorded the sale instead of the commission. When you sell real estate, sales is not your income. (You're working for the seller; you aren't the seller. I believe the owner of the property wants that money.) Your income is the commissions, the 15,000.

You did not indicate that your entry was meant for the accrued basis, though I kind of assumed it was. The problem never asked for the entries, but if you want to do entries, you need to indicate which method the entries are for.

You would not make both sets of entries in reality, so you must treat them as being separate things. On post #3 your first entry would be correct for the cash basis -- but again, you've given no indication which method that was supposed to be for.

I think you are trying too hard to do both methods at the same time. Do one method only, without thinking about the other method. Then when you finish, switch to the other method and forget the other one existed. They cannot both be done, so each one has to be done as though the other did not exist.

So start over. The entries in this last post are correct for the accrued basis. But you have not indicated that it is for the accrued basis. In fact, since the accrued basis is (b) it's really kind of your second entry. (Actually, entries, plural, since accrued requires two.)

Then you re-do the entry from scratch as though the other one never happened. The first entry you listed in post #3 is correct for the cash basis.

In the end:
(a) cash basis is the dr to cash and cr to revenue in July
(b) accrued basis is the dr to A/R and cr to revenue in June, then the dr to cash and cr to A/R in July
All for $15K.

By the way, don't forget that the question is actually asking for WHEN the revenue should be recognized for each one. Don't get so caught up in entries that you forget to answer what the question is asking for.