Ch 6 Revenue Recognition V2

Ch 6 Revenue Recognition V2 - Revenue Recognition Chapter 6...

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Revenue Recognition Chapter 6 1
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2 Revenue Recognition Understanding the nature of sales transactions from a business perspective Economics of business transactions Legalities Accounting – presentation and disclosure Revenues versus gains Net income versus other comprehensive income Gross versus net revenues IFRS/Private Entity GAAP Comparison Analysis Looking ahead Accounting for sales transactions – recognition and measurement Earnings approach Contract-based approach Comparison Measurability Collectibility Mechanics
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3 Revenue Recognition Understanding the nature of sales transactions from a business perspective Economics of business transactions Legalities Accounting – presentation and disclosure Revenues versus gains Net income versus other comprehensive income Gross versus net revenues IFRS/Private Entity GAAP Comparison Analysis Looking ahead Accounting for sales transactions – recognition and measurement Earnings approach Contract-based approach Comparison Measurability Collectibility Mechanics
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4 Understanding Sales Transactions Accounting for revenues is often very complex Much of complexity is caused by the structure of the sales transactions To properly account for sales transactions, accountants must understand the business of the entity and the nature of the transaction Key questions for understanding the sales transactions from a business perspective are: What is being given up? What is being received? Normally specified in sales agreements
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5 What is being sold? Sales transactions often involve transfer of goods, services, or both (known as deliverables ) Accounting is different under each situation Sale of goods: physical assets with finite point when control transfers to buyer (generally with transfer of legal title and possession ) Sale of services: legal title and possession irrelevant Sale of goods and/or services combinations: complexity in measuring each component of bundled sales or multiple deliverables
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6 What is being received? Consideration being received for goods and/or services sold is either: Cash or cash-like (monetary) Non-monetary (another good/service, also known as barter) Generally assume that the transaction is at arm’s length (between unrelated parties) such that Value of deliverables sold Value of consideration received =
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7 Concessionary Terms It is critical to understand if sales are done under normal terms , or are special/unusual and contain concessionary terms such as: Lenient return/payment policy More accommodating credit policy “Bill and hold” transactions Inclusion of “extras” Concessionary terms may create additional obligations , or may indicate that control has not passed to the buyer
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8 Legalities Rights and obligations of sales transactions are described and governed by law Contract law
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This note was uploaded on 01/05/2012 for the course BACK 1ALL taught by Professor Mach during the Spring '11 term at Folsom Lake College.

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Ch 6 Revenue Recognition V2 - Revenue Recognition Chapter 6...

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