Directions: Read and respond to the following questions in the attached exercise on revenue recognition issues for Survey Monkey.
- Assume that Black Squirrel Design, Inc., signs up for the Platinum plan at Survey Monkey on December 1, 2015. The customer pays the entire $780 on March 1. How will Survey Monkey record this customer’s payment? What asset and/or liability accounts are affected?
- Continue the same example from Item #1. If Survey Monkey has a December 31 year end, how much revenue related to the Platinum plan purchased by Black Squirrel Design will Survey Monkey recognize at December 31, 2015? How much revenue from the Black Squirrel Design purchase will be recognized during 2016?
Direction: Provide an argument as to why you agree or disagree.
3. The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle. They both determine the accounting period in which revenues and expenses are recognized. According to the principle, revenues are recognized when they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash is received.