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ch18 - CHAPTER 18 Revenue Recognition(pages 905-1018...

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CHAPTER 18: Revenue Recognition (pages 905-1018) 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. *8. Explain revenue recognition for franchises and consignment sales. *This material is covered in an Appendix to the Chapter. 18-1
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18-2
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A. Conceptual nature of revenue and the basis of accounting 1. Revenue from selling products recognized at the date of sale 2. Revenue from services rendered recognized when services have been performed and are billable. 3. Revenue from permitting others to use enterprise assets, such as interest, rent, and royalties recognized as time passes or as the assets are used. 4. Revenue from disposing of assets other than products is recognized at the date of sale. B. Revenue Recognition Principle 1. Revenue is recognized when it is: a. Realized or realizable b. convertible into cash or claims to cash c. Earned (1) entity has substantially performed the required acts (2) earnings process is virtually complete 2. Sales transactions: a. Revenue recognized at point of sale (1) Cash sales versus credit sales. (2) Sales with buyback agreements. b. For sales where there is a high ratio of returned merchandise to sales recognize sale only if all six of following conditions are met: (1) Seller’s price fixed or determinable at date of sale. (2) Buyer paid seller, or is obligated without any contingencies.
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