On March 1st, Mr. Smithe signed up for a fitness program at Fit Co. and paid $960 for the entire program upfront. The program includes a total of 12 sessions and two sessions are delivered each month. How much revenue from Mr. Smithe should Fit Co. recognize at the end of March

The accrual principle in accounting states that the revenues for a period should match the expenses for that particular period and any revenue or expense should be recorded in the period to which it relates to. This means that the upfront fee received by Fit Co. is a liability and should not be recorded as a revenue until it is earned. So, by providing two sessions in the month of March, Fit Co. has earned revenue for 2 sessions out of the twelve. Thus, at the end of March, Fit Co. should record a revenue of,

Revenue - march = 960 * 2/12 = $160

chilljain33 chilljain33 · Answer 2 · 2021-12-23T13:01:30+01:00

The Fit Co. can realize revenues of the month of March from Mr. Smith as $160 which is calculate as a half-yearly membership to the receiver i.e., Mr. Smithe and only two sessions will be delivered to him during the month of March.

Mr. Smithe however will be liable to pay the entire amount of $960 as membership fees as only Fit Co. is doing so for the purposes of accounting as the year will change on March 31st.

Mr. Smithe joined the fitness program offered by the Fit co. Mr. Smithe paid for the entire program upfront in full. Mr. Smithe has agreed on the fact that he will get 12 sessions for this price.

In 12 sessions totally, the bifurcation of which will be 2 sessions delivered to him each month and hence it can be concluded that the fitness program is half yearly.

So for 1 month of service being offered and no liabilities for the month remain by the end of Mr. Smithe, the Fit Co. will have to realize 160 dollars as their revenue for the month ended March.

[tex]Revenue\ for\ March=\frac{960}{6}[/tex]

[tex]Revenue\ for\ March = 160\ dollars[/tex]

Hence, the calculation above makes it clear that that Fit Co. is able to realize a revenue of $160 for the month ended March from Mr. Smithe for accounting purposes.

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