Lecture%206-9_Part%20I%20std%20%5bB%26W%20pdf%20version%5d

Lecture%206-9_Part%20I%20std%20%5bB%26W%20pdf%20version%5d...

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k 6 P tI Week 6-9 Part I evenue Recognition Revenue Recognition
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2 Objectives 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 le 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 les sales
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3 . Conceptual Framework Projects for Financial 1. Conceptual Framework Projects for Financial Accounting and Reporting
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4 ierarchy of Qualitative Characteristics Hierarchy of Qualitative Characteristics Accounting Information Benefits > Costs d t d bilit Understandability i i Uf l Pervasive Constraint ser Decision Usefulness User User- Specific uality Relevance Reliability Quality Overall Quality Primary Decision Primary Decision-Specific Qualities Specific Qualities Continued
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5 Hierarchy of Qualitative Characteristics l li bilit Relevance Reliability Verifi- Representa- Neu- Predictive Feedback Timeli- ability tional Faithfulness trality Threshold Value ness Secondary and Comparability for Recognition Ingredients of Primary Qualities Interactive Quality (Including Consistency) Materiality
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6 2. Concept issues for revenue recognition
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7 Revenue Recognition and realization Recognition is the rocess of formally process of formally recording and porting items in the reporting items in the financial statements. Realization is the process of converting oncash recourses noncash recourses into cash or rights to sh cash.
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8 Conceptual Issues The decision as to when to recognize revenue t h f t 1. The economic substance of the event takes focuses on three factors: precedence over the legal form of the transaction. 2. The risks and benefits of ownership have been ansferred to the buyer transferred to the buyer. 3. The collectibility of the receivable from the sale is reasonably assured.
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9 Revenue Recognition Alternatives
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10 Alternative Revenue Recognition Methods 1. Revenue recognition in the period of sale 2. Revenue recognition prior to the period of sale evenue recognition at the completion of 3. Revenue recognition at the completion of production 4. Revenue recognition after the period of sale . evenue recognition delayed until a future 5. Revenue recognition delayed until a future event
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11 evenue Recognized Revenue Recognized Earned and Realizable Economic Substance and Transfer of Risks nd Benefits of Collectibility is Not Reasonably ssured Not Sufficient Transfer of Risks nd Benefits of Collectibility is Reasonably ssured and Benefits of Ownership Assured and Benefits of Ownership Assured Installment ethod Cost ecovery Deposit ethod Recognized before hysical Transfer Recognized at hysical Transfer Method Recovery Method Method Physical Transfer Physical Transfer Percentage-of- Completion Method L Completed- Contract Method L Accrual Method: “Normal” Revenue i t i t S l (for Long-Term
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Lecture%206-9_Part%20I%20std%20%5bB%26W%20pdf%20version%5d...

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