Ch 18 Summary - Ch 18 Key issues - Basic concept of revenue...

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Ch 18 Key issues - Basic concept of revenue recognition - Points of revenue recognition: Before / after date of delivery - Financial statement presentation under different revenue recognition cases I. 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. 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)
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This note was uploaded on 07/11/2010 for the course ACC 5110 taught by Professor Lee during the Winter '10 term at Wayne State University.

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Ch 18 Summary - Ch 18 Key issues - Basic concept of revenue...

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