Legal Plan Services: Report to the Accounting Manager

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Legal Plan Services deals in the provision services to members. These services include; legal plans for commercial drivers, business owners, and law officers and the plan for the family. These services are beneficial to members especially when faced with a lawsuit. In this case, the services will be free of charge for a time that is specified in the contract. The procedure to be followed in the accounting for services is provided for in the International Accounting Standards 18.

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Blake and Lunt (2001), In the provision of services, when a transaction’s outcome can reliably be estimated, then the revenue arising from such a transaction should be recognized by referring to the completion stage of the transaction as at the balance sheet date. This is known as “percentage of completion” method. These standards are used in recognizing revenue and expenses associated with it for service transactions.

The company has the following revenues; new members enrollment fee that is non refundable, non members who get the services pay some fees and the monthly contribution fro the members. The company does not carry out any other activities involving sales. The recognition of these revenues is not to the internationally recognized accounting standard.

They recognize the revenues when they have not received them. This is against the International Accounting Standards 18, where revenues are recognized when the cash against it is in the hands of the company. Revenues are recognized when there is certainty that the economic benefits that arise from the transaction will be inflows to the firm. However, when there is uncertainty concerning the collectability of an amount of revenue, the amount in question is treated as an expense (Rayman, 2006).

LPS should disclose the policies of accounting used in revenue and expense recognition. In addition the transaction’s completion stage methods must also be disclosed. Disclosure must also be done concerning the amount of each revenue category recognized in the period. Included in revenue categories, must be revenue accruing from exchange of services.

It the company receives charges from non members, monthly contribution and registration fee,

Revenue side

  1. Increase in the assets of the company(registration)
  2. Increase in the assets of the company (registration fee)
  3. Increase in revenues of the company (contribution charge)

Expenses side

  1. Increase in expenses (cost of operations)
  2. Interest charge (fees charges)

Journal entries for revenues

  • Dr Increase in assets
  • Cr increase on revenues

Journal entries for expenses

  • Dr Increase in cost expenses
  • Cr reduction on expenses

The accounting procedure of LPS is of the required standards but the recognition of different costs is not to the standards. They recognize the revenue even if they are probable they will be due. This recognition of revenue is misleading to the users who only follow the available standards in revenue and expense recognition.

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According to the terms of membership, LPS recognizes income arising from membership fees when these fees are due. This is not in line with IAS 18 which explains that revenue should be recognized when there is certainty that the income arising from such a transaction will be an inflow to the company.

In the case of new sales associates, the amount charge to cater for training if the associate enrolls for the training program of the company is recognized as revenue when the program comes to an end. This is contrary to IAS 18 which explains that revenue should be recognized as at the balance sheet date.

Legal Plan Services deals in the provision services to members. These services include; legal plans for commercial drivers, business owners, and law officers and the plan for the family. These services are beneficial to members especially when faced with a lawsuit. In this case, the services will be free of charge for a time that is specified in the contract.

Blake and Lunt (2001),In the provision of services, when a transaction’s outcome can reliably be estimated, then the revenue arising from such a transaction should be recognized by referring to the completion stage of the transaction, when the proceeds are received. These standards are used in recognizing revenue and expenses associated with it for service transactions in an organization.

The company has the following revenues; new members enrollment fee that is non refundable, non members who get the services pay some fees and the monthly contribution from the members. The company does not carry out any other activities involving sales. The recognition of these revenues is done with no reference to any accounting standards.

They recognize the revenues when they have not received them. The revenues are recognized before the company receives the money in their hands. Revenues are recognized when there is certainty that the economic benefits that arise from the transaction will increase the firm’s cash value. However, when there is uncertainty concerning the collectability of an amount of revenue, the amount in question is treated as an expense (Rayman, 2006).

LPS should disclose the policies of accounting used in revenue and expense recognition. In addition the transaction’s completion stage methods must also be disclosed. Disclosure must also be done concerning the amount of each revenue category recognized in the period.

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References

Blake, J., Lunt, H. (2001). Accounts standards. New York: Pearson Education.

Rayman, R. (2006). Accounting standards: true or false. Chicago: Taylor & Francis.

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BusinessEssay. (2022, March 19). Legal Plan Services: Report to the Accounting Manager. Retrieved from https://business-essay.com/legal-plan-services-report-to-the-accounting-manager/

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BusinessEssay. (2022, March 19). Legal Plan Services: Report to the Accounting Manager. https://business-essay.com/legal-plan-services-report-to-the-accounting-manager/

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"Legal Plan Services: Report to the Accounting Manager." BusinessEssay, 19 Mar. 2022, business-essay.com/legal-plan-services-report-to-the-accounting-manager/.

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BusinessEssay. (2022) 'Legal Plan Services: Report to the Accounting Manager'. 19 March.

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BusinessEssay. 2022. "Legal Plan Services: Report to the Accounting Manager." March 19, 2022. https://business-essay.com/legal-plan-services-report-to-the-accounting-manager/.

1. BusinessEssay. "Legal Plan Services: Report to the Accounting Manager." March 19, 2022. https://business-essay.com/legal-plan-services-report-to-the-accounting-manager/.


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BusinessEssay. "Legal Plan Services: Report to the Accounting Manager." March 19, 2022. https://business-essay.com/legal-plan-services-report-to-the-accounting-manager/.