After DTC Company managed to enter into contractual agreement with its customers for about $300,000 in a duration of three years they were supposed to finalize their contract within the same year of the deal. Another implication of the contract required DTC to complete the contract in the subsequent years to fulfil the contract’s demand. Finally, the arrangement helped in boosting the sales with more than $100,000 received in the same year due to the accrual basis stated in the contract.
The periods of services do not necessarily match or justify the amount of money received. Also, the investment will affect the financial status of the company if they continue with their sales and it will result in low revenue ( King, Masumoto, Heller, & Harp, 2011 ). The state of affairs will be biased since the situation will force the company to change its books and accounts.
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Describe the proper way to record the transactions on DTC’s books.
When it comes to the recording of the transaction for debit cash account, it is important to have the transactions for the credit to revenue advancements. It implies that the current balance sheet and the cash balance are on the assets side which is increasing. As the liability increases, the advanced revenue is also received. Additionally, the services rendered is equal to the amount in the advanced revenue receipt which is equated to the entry debt of the corresponding credit which is in the service revenue account.
According to the accrual accounting, the revenue method uses in recording the transactions should be recognized, especially when it is earned and referred to as expenses when they are incurred ( Wei, Shi, Chen, & Chen 2016 ). It is another method that is used in accounting especially when the timely receipt and the payment of cash are not recognized when recording revenue or the organizations’ expenditure. As stated above it provides an alternative for the recording of DTC transactions.
References
King, N., Masumoto, W., Heller, P., & Harp, M. (2011). U.S. Patent No. 7,941,353 . Washington, DC: U.S. Patent and Trademark Office.
Brown, J. R., & Carcello, J. V. (2016). Comment on SEC Release No. 33-9929, Effectiveness of Financial Disclosures About Entities Other than the Registrant. U Denver Legal Studies Research Paper , (16-01).
Chen, Y., Wei, X., Shi, J., Chen, R., & Chen, H. (2016, April). Fast and general distributed transactions using RDMA and HTM. In Proceedings of the Eleventh European Conference on Computer Systems (p. 26). ACM.
