Q: In Transaction 15, cash recognized is recognized, so why not use the revenue recognition rule?
A: In Transaction 15, Sierra Products recorded an increase in short-term debt of $274,346. No revenue is associated with an increase in short-term debt.
Cash came in from the loan, and so Sierra Products increased its cash balance by $274,346 with a debit entry since a debit increases an asset account. The offsetting entry was a credit entry to notes payable, a liability account, to increase that balance by the same amount, and so Sierra Products credited, or increased, notes payable by $274,346.
Sierra Products did not recognize or post an entry to a revenue account on the income statement. Nor did it recognize or post an entry to an expense account on the income statement that was associated with a revenue account. The only rule that applied in recording this transaction, therefore, was the historic cost rule.
Course overview: Recording Transactions and Creating the Balance Sheet and Income Statement