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

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

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Unformatted text preview: eek 6 eek 6-9 Revenue Recognition 2 bjectives onceptual framework for Financial Reporting 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 sale . ccount for revenue recognition after the period of 4. Account for revenue recognition after the period of sale 5. Account for revenue recognition delayed until a future ent occurs event occurs. 6. Understand software revenue recognition, franchises, real estate sales, retail land sales, and consignment sales 4. Account for revenue recognition after the eriod of sale 3 period of sale--4. 1Installment Method Installment sales involve a financing agreement whereby the customer signs a …makes a small down payment,… contract,… 4 stallment Method Installment Method …and agrees to make periodic payments over an extended period, often several years. 5 evenue Recognized at Collection Revenue Recognized at Collection ¡ Two methods employed to defer revenue recognition until cash is received are the installment sales method and the cost recovery method . These methods are used only when the point-of-sale or other GAAP revenue recognition methods are not appropriate. ¡ These methods may be used only when there is uncertainty about whether the sales price will be collected and when an allowance for bad debts cannot be reasonably estimated. 6 stallment Method Installment Method 1. Total sales, cost of goods sold, and collections are recorded in the normal manner during the year. 2. At the end of the year, installment sales are identified. The revenue and the related cost of goods sold are “reversed,” and the deferred gross profit is recognized. 3. At the end of the year, the gross profit rate on installment sales is computed. Continued Continued 7 stallment Method Installment Method 4. A portion of the deferred gross profit is recognized as gross profit for the year. 5. In future years the remaining deferred gross profit is reduced and the gross profit is recognized based on the cash collected on the installment sales. 8 stallment Method Installment Method Consider the following information for the Lee Company for 2010: Total credit sales $500,000 otal cost of goods sold 90,000 Total cost of goods sold 390,000 Installment method sales 100,000 Installment method cost of goods sold 75,000 Gross profit rate on installment method sales 25% Cash receipts on installment method sales 20,000 ash receipts on other credit sales 00 000 Cash receipts on other credit sales 300,000 Lee Company uses the perpetual inventory method. 9 stallment Method Installment Method The company records the total sales and cost of oods sold for the year: goods sold for the year: During 2010 Continued Continued 10 stallment Method Installment Method The company recognizes cash collections—$20,000 for installment sales and $300,000 for other credit sales: During 2010 Continued Continued 11 stallment Method...
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This note was uploaded on 02/04/2012 for the course ACCT 3111 taught by Professor Zhang during the Spring '11 term at CUHK.

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

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