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Basic Handout Packet

Basic Handout Packet - Revenue Kecognrtron Staff Accounting...

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Revenue Kecognrtron Staff Accounting Bulletin No. 101 summarizes the staff's views on applying GAAP :o revenue recognition-an area where many companies encounter problems. Revel should not be recognized until realized or realizable and earned. In the staff's vie $5 this occurs only when all of the following criteria are met: persuasive evidence of .in arrangement exists, delivery has-occurred or services have been rendered, the #;el !trls price to the buyer is fixed or determinable, and collectibility-is reasonably assure . ... - -. .- .... __ Persuasive Evidence . , - - - - -.. _ . , The staff identifies a number of ,circumstances relevant to determining whether persuasive evidence of an arrangement exists. a Signed, wn'lfen agreements If the company requires a written sales agreement, a final agreement executed and approved by the customer before the end of the period normally would be persuasive evidence. Side agreements Companies must properly account for "side agreements" to a master contract that effectively amend it. Some side agreements could include cancellation, termination, or other provisions affecting revenue recognition. The staff views the existence of a subsequently executed side agreement as a possible indicator that the original agreement was not final and revenue recognition was not appropriate. a Consignments and simiiar arrangements Products delivered under consignment are not sales and do not qualify for revenue recognition. Revenue should not be recognized until title passes and risks and rewards of ownership pass to the customer. The SAB emphasizes that judgment is necessary in assessing whether a transaction is indeed a sale, or i's a consignment, financing;or other.arrangement for which revenue recognition is not appropriate. Delivery and Performance The SAB discusses a.number of conditions relating to delivery and performance that may preclude revenue recognition. Bill and hold transactions Delivery generally is not considered to have occurred unless the customer has taken title and assumed the risks and rewards of ownership. Customer acceptance For delivery or performance to have occurred, a seller must have substantially completed or fulfilled the terms in the arrangement. The SAB also discusses revenue recognition where there are multiple deliverables.
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