Lecture%206-9_Part%20I%20std

Lecture%206-9_Part%20I%20std - Revenue Recognition Week 6-9...

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Unformatted text preview: Revenue Recognition Week 6-9 Part I 2 1. Conceptual framework for Financial Reporting 2. Concept issues for revenue recognition & Revenue recognition alternatives 3. Account for revenue recognition prior to the period of sale 4. Account for revenue recognition after the period of sale 5. Account for revenue recognition delayed until a future event occurs. 6. Understand software revenue recognition, franchises, real estate sales, retail land sales, and consignment sales Objectives 3 1. Conceptual Framework Projects for Financial Accounting and Reporting 4 Primary Decision-Specific Qualities Primary Decision-Specific Qualities Relevance Relevance Reliability Reliability Accounting Information Benefits > Costs Benefits > Costs Understandability Understandability Decision Usefulness Pervasive Pervasive Constraint Constraint Pervasive Pervasive Constraint Constraint Continued Continued Continued Continued Hierarchy of Qualitative Characteristics User-User-Specific Specific Quality Quality User-User-Specific Specific Quality Quality Overall Overall Quality Quality Overall Overall Quality Quality 5 Ingredients of Primary Qualities Ingredients of Primary Qualities Relevance Relevance Reliability Reliability Verifi-ability Representa-tional Faithfulness Neu-trality Secondary and Interactive Quality Materiality Materiality Comparability (Including Consistency) Threshold for Recognition Threshold for Recognition Hierarchy of Qualitative Characteristics Predictive Value Predictive Value Feedback Value Timeli-ness 6 2. Concept issues for revenue recognition 7 Recognition is the process of formally recording and reporting items in the financial statements. Recognition is the process of formally recording and reporting items in the financial statements. Revenue Recognition and realization Realization is the process of converting noncash recourses into cash or rights to cash. Realization is the process of converting noncash recourses into cash or rights to cash. 8 1. The economic substance of the event takes precedence over the legal form of the transaction. 2. The risks and benefits of ownership have been transferred to the buyer. 3. The collectibility of the receivable from the sale is reasonably assured. The decision as to when to recognize revenue focuses on three factors: Conceptual Issues 9 Revenue Recognition Alternatives 10 1. Revenue recognition in the period of sale 2. Revenue recognition prior to the period of sale 3. Revenue recognition at the completion of production 4. Revenue recognition after the period of sale 5. Revenue recognition delayed until a future event Alternative Revenue Recognition Methods 11 Earned and Realizable Economic Substance and Transfer of Risks and Benefits of Ownership Collectibility is Not Reasonably Assured Installment Method Cost Recovery Method Percentage-of-Completion Method (for Long-Term Contracts) Completed-Contract Method (for Long-Term Contracts) Accrual Method: Normal Revenue Recognition at Sale Not Sufficient...
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Lecture%206-9_Part%20I%20std - Revenue Recognition Week 6-9...

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