Chapter_18_Lecture

Chapter_18_Lecture - Chapter 18 LECTURE I think you are all...

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LECTURE I think you are all generally unfamiliar with revenue recognition bases other than at point of sale. Illustrations 18-2, 18-3, and 18-4 should be helpful in demonstrating the accounting for long-term contracts and installment sales. A. Revenue Recognition—Basic Concepts. 1. Revenue recognition: One of the most difficult problems facing the accounting profession. This problem arises from the difficulty in developing guidelines applicable to all situations. 2. Recognition principle: Revenue is recognized when it is Illustration 18-1 explains the important concepts in revenue recognition. a. Realized or realizable (convertible into cash or claims to cash). b. Earned (entity has substantially performed the required acts). 3. Sales transactions: (Revenue recognition at point of sale .) a. Cash sales versus credit sales. b. Sales with buyback agreements. c. Problems when a high ratio of returned merchandise to sales exists. Recognize sale only if all six of following conditions are met: (1) Seller's price fixed or determinable at date of sale. (2) Buyer has paid seller, or is obligated to do so without any contingencies. (3) Buyer's obligation to pay is not affected by theft, destruction, or damage of the product. (4) Buyer has economic substance apart from that provided by the seller. (5) Seller is not obligated to bring about resale of the product by the buyer. (6)
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This note was uploaded on 02/12/2010 for the course ACCTG 100A taught by Professor Farimafakoor during the Spring '09 term at Golden Gate.

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Chapter_18_Lecture - Chapter 18 LECTURE I think you are all...

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