lec13_AR_Blackboard

lec13_AR_Blackboard - Revenue Recognition Refinements and...

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Revenue Recognition Refinements and Accounts Receivable
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Asset & Expense Assuming no I,W, G,L income = R-E = ΔOE ΔOE = Δ(A-L) 2200 R-E = ΔA - ΔL
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Learning Objectives Examine some exceptions to the realization principle. Understand how receivables are reported and why.
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Revenue recognition Recall that revenues are typically recognized when realized. In most cases realization occurs at point of sale. There are a few exceptions to this rule.
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Revenue Recognition Prior to Delivery i.e.; when production is complete During production: Production costs XXX Payable & assets XXX End of accounting period: Inventory XXX Revenue XXX When shipments made: A/R XXX Inventory XXX
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Example: Assume fixed price of gold per ounce = $300, production costs = $8,500, ounces produced = 50 oz. During production: Production costs 8,500 Cash 8,500 When production is complete: Inventory 15,000 Revenues 15,000 When shipments is made: A/R 15,000 Inventory 15,000
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Recognition During Production Accounting for Long-Term Construction Contracts Facts: Construction period is 3 years; fixed contract price is $500,000; expected gross margin is $100,000.
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