073reviewforM2

073reviewforM2 - Midterm 2 Review Outline Fall 2008 Please refer to syllabus for'practice handouts as you prepare for review Revenue Cycle

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Midterm 2 Review Outline Fall 2008 Please refer to syllabus for 'practice' handouts as you prepare for review Revenue Cycle: There are no general rules as with LT construction contracts Some % of the total revenue is 'earned' at outset The rest is earned over time as stated in handout Pay attention to earned and unearned revenues [depending on pattern of payments by franchisee] Did 1320 in classes….Do 1323 in reviews… There are no general rules as with LT construction contracts Pay attention to earned and unearned revenues [depending on pattern of payments by member] Did 1326 in classes…. Testable on midterm 2…do 1329 in reviews. . Caution: if you make a different assumption about when the memberships are sold in the month, you can get slightly different answers…. Construction in Progress [CIP]…a current asset Like an 'inventory' account Increases with debits equal to annual costs incurred on project [and with annual profits] Progress Billing [PB]…like an 'unearned revenue' account…a current liability Increases with credits when customers are billed Accounts Receivable [AR]…is a 'bit' player in this movie Increases with debits as customer is billed Decreases with credits as customer pays Plays no role in revenue recognition on LT const. Contracts Contract price [CIP]: what the customer will pay in total to const. company At the end of each year a fraction is constructed: numerator: total project costs incurred to date [cumulatively] denominator: estimated costs of the completed project [use best current estimate of the total project costs] This fraction gives the 'percentage of completion' [%] Multiply the % by the CP to obtain cumulative revenues to date then: subtract any/all revenues previously recognized to obtain current year's revenues Construct a JE: Debits to Expense for the amount spent this year on the project and to CIP if there is a profit] Credits to revenues for the current year only Franchisors' revenue recognition …as the 'work' is performed Membership contracts : revenue recognition…as the 'work' is performed Long-term Construction Contracts : percentage of completion method
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[and CIP is there is a loss] This JE will impact the balance in the CIP account. At the end of the year and in the balance sheet, the balances in CIP and PB are netted: if a net debit then treat the difference as a current asset [if a net credit then treat the difference as a current liab.] Did 1348 and 1360 in classes Credit policies: can be partially explained by relative gross margin percentages JE for sale on account JE if receive cash payment in discount period alternatively, JE if receive payment at the due date JE to record the sales return. .periodic system only [debit Sales Return and credit AR] JE to record the sales allowance [debit Sales Allowance and credit AR] Make up a spontaneous exmaple of sales discounts/allowances/returns
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This note was uploaded on 04/12/2009 for the course BUAD 250A taught by Professor 10:00-10:50 during the Fall '06 term at USC.

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073reviewforM2 - Midterm 2 Review Outline Fall 2008 Please refer to syllabus for'practice handouts as you prepare for review Revenue Cycle

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