Case #9 - How much revenue has CSX earned?

Instructor Notes

The concept of revenue recognition is critical to understanding accrual accounting. This is a great case to start chapter 2 before there is any discussion of accrual accounting. Up until this point, students have only been exposed to cash transactions where the cash is received at the same time the service is provided. Make sure to emphasize that the case is posing a new problem where services are being provided before any cash is received. Although the case is simple, students will come up with a variety of answers.

Difficulty: Medium

Learning Objectives: IFAB 1e Ch. 2 LO 2, FFAC 10e Ch. 2 LO 1, Survey 5e Ch 2 LO 1

Implementation: Distribute copies of the case to the class before providing any explanation of accrual accounting or accounts receivable. Ask students to read the case and individually develop answers. After allowing students time to develop their individual answers, put them into groups to reach consensus on an answer. Also, ask each group to select a spokesperson. Allow groups time to develop answers, then call on some of the spokespersons to share their solutions. As you respond to the student solutions, explain the basic concepts of revenue.

Handouts and Solution for Case #9 available on Resources Page

How much revenue has CSX earned?

Suppose a company located in St. Louis, Missouri, needs to ship goods to a customer located 2,000 miles away in Portland, Oregon. The company arranges to have CSX Corporation, a large transportation company, ship the goods to Portland by rail. CSX will be paid $2,000 for shipping the goods, but payment will not be made until after the goods have been delivered.

Discussion Question:

When should CSX report it has earned the revenue for shipping the goods?

#ProblemBasedLearning #RealWorld