I got asked this in a lateral interview. It was the only accounting question I got and didn't know how to answer lol. Seems like a pretty simple question.
You’re paying me $20 to build you a bird house that will be made in 3 days. Walk me through the 3 financial statements.
Anyone help?
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I suck at accounting and am a prospective summer analyst. I thought I would give this a try though.
Cash: -20
PP&E: +20
Assets: +20
Revenue: -20
Accounts Payable: -20
Go easy on me... liberal arts major but wanted to give it a shot.
Accounts payable would increase so “-20” doesn’t make a whole lot of sense. You can think of that account as a negative in general because at some point in the future, it will take away from available cash balance
Depends, are you a company that sells birdhouses or are you a company that uses birdhouses as long-term operating assets. Based on that you can either capitalize it as ppe or as inventory.
Depends on whose financial statements you're looking at. I'll assume you're looking at the person who is building the bird house.
First entry on day cash is handed over - debit cash 20, credit deferred revenue 20.
Second entry on day birdhouse is transferred to recipient - debit deferred revenue 20, credit revenue 20.
Third entry also on day birdhouse is transferred to recipient - debit COGS for amount spent to make birdhouse, credit inventory for same amount.
Source: accounting major
This.
thank you
I see that you’re using completed contract method but why would that be preferred over percentage of completion method? I would have answered recognizing the revenue 1/3 over each day (3 days total) the birdhouse is being made.
Yeah I wouldn't use a percentage of completion method for a $20 birdhouse being made over three days lmao. Usually that'd be used for long term construction projects, not small, transactional activities.
Small caveat but they didn't mention how you were paying (or maybe you forgot to mention it), so technically it could go in either cash or accounts receivable/payable, depending on whose statements you're looking at
All questions are good when asked for the right reasons. Seems like a reasonable question. I don’t know if a person can learn without asking questions
And not sure if I can answer unless I know whose financial statements
If it’s me paying you to build me a bird house. I would just pay you the money now or as soon as I could. I don’t really need financial statements for my personal finances
So the 3 financial statements would continue to be empty or I would just say I’m good with money as my one financial statement
Wtf this is the same guy who keeps changing his username and making totally non-sensical comments and posts. Please tell me you're trolling
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