Jackson was one of the lawyers of a legal finn which provided legal services to its customers. One of its customers, Fresh and Clean Company, would sign a contract with Jackson's firm for the legal services provided. The legal service fee would be assessed on individual case basis, depending on the complexity of the case handled. The fee for each case ranged from $50,000 to $100,000.

Jackson had signed the contract with Fresh and Clean Company on December 31, 2020 and it was agreed that Fresh and Clean Company would pay all service fee outstanding once the case was closed.

Upon signing the contract on December 31, 2020 , Fresh and Clean Company had given an initial amount of $30,000 to Jackson' s firm as an advance payment for a case that would be started in early January 2021.

Jackson would like to include this amount as revenue earned in the financial year ended December 31, 2020 to increase the profit of the business and thus obtaining a larger amount of bonus.

 

Required:

a. Based on the accounting principles or concepts you have learnt in this course, comment on Jackson' s proposal of including $30,000 as revenue earned in the financial year ended December 31, 2020.

2. b. If you were the accountant, how would you deal with the accounting treatment of the $30,000 received on December 31, 2020 according to the accounting principles or concepts you have learnt in this course? Explain.