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ACCA Applied Knowledge · Financial Accounting · Double-entry bookkeeping principles including the maintenance of accounting records

A business receives $3,000 from a customer as a deposit for goods to be delivered next month. Under IFRS, which entry is correct on receipt?

Debit Bank $3,000 and credit a contract liability, or deferred income, for $3,000. Cash has been received, but the goods have not yet been delivered, so revenue is not yet recognised and the business owes the customer delivery.

  1. ADebit Bank $3,000; Credit Revenue $3,000
  2. BDebit Bank $3,000; Credit Contract liability $3,000Correct
  3. CDebit Receivables $3,000; Credit Bank $3,000
  4. DDebit Contract liability $3,000; Credit Bank $3,000

Explanation

Cash is received so bank is debited. Revenue is not earned until goods are delivered, so the credit is to a liability (deferred income or contract liability). Crediting revenue overstates income, and the other options reverse or misuse accounts.

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