Accounting for Professional Services: Revenue and Expense Recognition for Professional Services In Tutorial Library

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TITLE: Accounting for Professional Services: Revenue and Expense Recognition for Professional Services



Design Services Inc, an E/A firm in the foothills of the Smoky Mountains, uses the accrual basis of accounting and recognizes revenue at the time it renders services and uses the percentage-of-completion method for recognizing revenue on long-term contracts.

Indicate for each transaction listed below the amount of revenue or expense, if any, recognized in September, October, or November:

1.     The firm collects fees from a client in the amount of $10,000 in September for billings outstanding at August 31st.

2.     The firm collects an advance from a client in the amount of $25,000 in October for professional services which will not start until December.

3.     The firm begins work on a project on November 1st with a $100,000 contract.  Fifty percent of the work is completed by November 30th.  The remainder of the work is completed in December.  No billings are sent to the client until the project is 100% complete.

4.     The firm purchases a copier/printer to be used for office and marketing support services on October 1st, at which time the equipment is placed in service although the supplier is not requiring payment until November.  The cost of the equipment was $2,000.  The cost is depreciated (written off) over five years at a rate of $400 per year.

5.     The firm pays $5,000 in September for a trainer to provide a workshop onsite in late October.

6.     The firm reimburses a Project Manager on September 25th in the amount of $800 of which $250 was for non-project-related business travel expenses in October and $550 was for the registration of a local professional conference scheduled in November.

The firm paid $10,000 on October 31st as a deposit for new office space to be occupied in January.

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