Chapter 18 and 8 power points

Chapter 18 and 8 power points - Chapter 18 and 8 Revenue...

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1 Chapter 18 and 8 Revenue Recognition and Select Topics on Inventories
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2 Chapter 18 Objectives LEARNING OBJECTIVES 1. Apply the revenue recognition principle. 2. Describe accounting issues for revenue recognition at point of sale. 3. Apply the percentage-of-completion method for long- term contracts. 4. Apply the completed-contract method for long-term contracts. 5. Identify the proper accounting for losses on long-term contracts. 6. Describe the installment-sales method of accounting. 7. Explain the cost-recovery method of accounting
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3 Revenue Recognition The revenue recognition principle provides that revenue is recognized when (1) it is realized or realizable, and (2) it is earned. 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, that is, when the earnings process is complete or virtually complete.
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4 So when is revenue recognized? The conceptual nature of revenue as well as the basis of accounting for revenue transactions are described in the following four statements. a. Revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers. b. Revenue from services rendered is recognized when services have been performed and are billable. c. Revenue from permitting others to use enterprise assets, such as interest, rent, and royalties, is recognized as time passes or as the assets are used. d. Revenue from disposing of assets other than products is recognized at the date of sale.
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5 Point of Sale Sales transactions result in the exchange of products or services of an enterprise for other valuable assets, normally cash or a promise of cash in the future Although most sales transactions are fundamentally similar, differences in the method or terms of sale lead to real differences in the transactions themselves and thus to differences in the appropriate accounting for them.
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6 FASB says… According to the FASB, revenue is recognized when the product is delivered or the service is rendered. This time of recognition is normally at the time of sale when the product or service is delivered to the customer. Some problems in implementing these basic principles arise when (a) sales have buyback agreements, (b) the right of return exists, and (c) trade loading or channel stuffing is present.
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7 To have a sale, all six conditions must exist: In most business enterprises, a far greater proportion of total sales volume is handled on a credit basis than on an ordinary cash sale basis. In situations where the seller gives the buyer the right to return the product, the FASB concluded that the transactions should not be recognized currently as sales unless all of the following six conditions are met:
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This note was uploaded on 02/25/2010 for the course ACCT 300A taught by Professor Bob during the Spring '10 term at University of Arizona- Tucson.

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Chapter 18 and 8 power points - Chapter 18 and 8 Revenue...

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