CHAPTER%2004%20%20POWER%20POINT%2020090

CHAPTER%2004%20%20POWER%20POINT%2020090 - CHAPTER 04...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
    1 CHAPTER 04 Revenue Recognition
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    2 Revenue Recognition When should we recognize revenue? Revenue Recognition  Principle: Revenue Recognition  Principle: General rule used by GAAP Recognize revenue when it is earned. Revenue is earned when: 1.Product is completed and delivered Service is completed
Background image of page 2
    3 Example: REVENUE RECOGNITION KZB Ltd. construction builds residential homes, each home  sells for $250,000. It takes approx. 6 months to build each  home. Mar. 1 –Sign Contract Mar.15- Deposit $50,000 collected May 15.- Construction begins, collect $75,000. Jun. 15- Construction continues, collect $75,000. Jul. 15. – Construction complete. Customer takes possession  of home.  Balance of $50,000 paid. When should revenue be recognized / recorded ?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    4 Revenue Recognition Revenue Recognition  Principle: Revenue Recognition  Principle: Recognize revenue when it is earned. Revenue is earned when: 1.Product is completed and delivered 2. Service is completed
Background image of page 4
    5 Recognize Revenue 3 criteria: 1. Revenue is Earned – General  Rule-Product is completed and   Delivered- Service is completed  EARNED; 1. Revenue is measurable-  We know how much goods  are sold for.  2. Reasonable assurance that revenues are fully  collectible-  If we sell for cash N/A Credit sales create risk of collection. 3.Costs required to earn revenue are easily  measured
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    6 General Rule ; Recognize revenue when earned- Recognize revenue at the time of sale.
Background image of page 6
    7 Risks and Uncertainties of Credit Sales Bad Debt expenses: Sales on Account, results in Accounts  receivable. Collection at a later date has risk of buyer will  not pay. Seller has credit check to reduce risk. Uncollectible amounts are estimated.  Dr Bad debt expense $xxxxx Cr Allow. to reduce A/R $xxxx
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    8 Sales Warranty: Some goods carry a guarantee or warranty.  If goods break down, within a certain period of time,  they are fixed free of charge. At time revenue is recognized we need to estimate  the cost of the warranty expense. To match the expenses to related revenue. 
Background image of page 8
    9 Sales Warranty: Ex;Sales-revenue for the year 2008 were $100,000.  The sales made included a2 year warranty on all  goods.The  manager estimates the cost to repair  goods on warranty $8,000 over next 2 years. Record sales and warranty cost:
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/06/2009 for the course MANAGEMENT MGCR 211 taught by Professor Zajdman during the Summer '09 term at McGill.

Page1 / 38

CHAPTER%2004%20%20POWER%20POINT%2020090 - CHAPTER 04...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online