ch18 part 1 - Chapter 18 Revenue Recognition Part 1 AIM...

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  Chapter 18. Part 1 1 Chapter 18: Revenue Recognition  Part 1 AIM 3331-0U1 Summer 2009 Xinyi Lu
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  Chapter 18. Part 1 2 Objectives  Review the  revenue recognition principle . Discuss accounting issues for revenue recognition  at  point of sale . Discuss accounting issues for revenue recognition  before delivery . Study the percentage-of-completion methods for  long-term contracts. Study the completed contract methods for long-term  contracts. Discuss accounting issues for revenue recognition  after delivery . Study the installment-sales method of accounting. Study the cost-recovery method of accounting.
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  Chapter 18. Part 1 3 Revenue Recognition Principle question:  When  to recognize revenue? Revenue recognition is one of the most difficult problem  facing the accounting profession, because it is difficult to  develop guidelines applicable to all situations. Revenue recognition has been the largest source of  public company restatements over the past decade.  Restatements of revenue: Result in larger drops in market capitalization than   other types of restatement. Caused eight of the top ten market value losses in a  recent year.
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  Chapter 18. Part 1 4 Guidelines  for Revenue Recognition FASB Statements of Financial Accounting  Concepts No. 5-”Recognition and  Measurement in Financial Statement of  Business Enterprises”. The  revenue recognition principle  provides  that companies should recognize revenue 1) when it is  realized   or realizable  and  2) when it is  earned .
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  Chapter 18. Part 1 5 Guidelines  for Revenue Recognition (cont.) Revenues are  realized  when goods and services are  exchanged for cash or claims to cash (receivables).  Revenues are  realizable  when assets received in  exchange are readily convertible to known amounts of  cash or claims to cash.  Revenues are  earned  when the entity has substantially  accomplished what it must do to be entitled to the benefits  represented by the revenues, i.e., when the earnings  process is complete or virtually complete. In general, these conditions are met  at time of sale  (delivery) or when services are rendered .
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  Chapter 18. Part 1 6 Revenue Recognition Policy  Example: Wal-mart The Company  recognizes sales revenue  net of sales  taxes and estimated sales returns  at the time it sells  merchandise   to the customer , except for layaway  transactions. The Company  recognizes revenue  from layaway transactions   when the customer  satisfies all payment obligations and takes  possession of the merchandise . Customer  purchases of shopping cards  are not recognized  as revenue  until the card is redeemed  
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ch18 part 1 - Chapter 18 Revenue Recognition Part 1 AIM...

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