Chapter 3 for course website

Required by generally acceptable accounting

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Accounting HKUST Recognize revenues when all of the following criteria are met: 1. Delivery has occurred or services have been rendered. 2. There is persuasive evidence of an arrangement for customer payment. 3. The price is fixed or determinable. 4. Collection is reasonably assured. Chapter Three Slide 21 of 74 PCCW Notes Introduction To Financial Accounting HKUST Chapter Three Slide 22 of 74 Exceptions Introduction To Financial Accounting HKUST Income recognition before the delivery of product Example: Long term contracts (airplanes, or construction of buildings or pipelines). We usually recognize revenues on a percentage of completion method). Income recognition after the sale Example: Sales where payment comes in periodic installments after the product/service has actually changed hands (e.g., retail home furnishings). Used because there is often unusually high risk that payment may not be collected. Chapter Three Slide 23 of 74 Boeing Company, 2008 Annual Report Revenue Recognition Introduction To Financial Accounting HKUST Chapter Three Slide 24 of 74 Revenue Principle Introduction To Financial Accounting HKUST When cash is received on the date the revenue is earned the following entry is made: earned, Company Delivers AND $ Received Cash (+A) Sales revenue (+R, +SE) x,xxx x,xxx Chapter Three Slide 25 of 74 Revenue Principle Introduction To Financial Accounting HKUST If cash is received before the company delivers goods or services, the liability account UNEARNED REVENUE is recorded. Cash received before revenue is earned $ Received Cash (+A) Unearned revenue (+L) Revenue Deferral Chapter Three Slide 26 of 74 x,xxx x,xxx Revenue Principle Introduction To Financial Accounting HKUST If cash is received before the company delivers goods or services, the liability account UNEARNED REVENUE is recorded. Cash received before revenue is earned $ Received Cash (+A) Unearned revenue (+L) x,xxx x,xxx Revenue Earned Accruals reverse. x,xxx x,xxx Slide 27 of 74 Unearned Revenue (-L) Sales Revenue (+R, +SE) Chapter Three Revenue Principle Introduction To Financial Accounting HKUST Typical liabilities that become revenue when earned include . . . CASH COLLECTED (Goods or services due to customers) Rent collected in advance Unearned air traffic revenue Deferred subscription revenue REVENUE over time will (Earned when goods become or services provided) Rent revenue Air traffic revenue Subscription revenue Chapter Three Slide 28 of 74 Revenue Principle Introduction To Financial Accounting HKUST If cash is received after the company delivers goods or services, an asset ACCOUNTS RECEIVABLE i recorded. is d d Cash received after revenue is earned Company Delivers Accounts receivable (+A) x,xxx Sales revenue (+R, +SE) x,xxx Revenue Accrual Chapter Three Slide 29 of 74 Revenue Principle Introduction To Financial Accounting HKUST If cash is received after the company delivers goods or services, an asset ACCOUNTS RECEIVABLE i recorded. is d d Cash received after revenue is earned Company Delivers $ Received Accruals reverse. Accounts receivable (+A) x,xxx Sales revenue (+R, +SE) x,xxx Cash (+A) x,xxx Accounts...
View Full Document

This note was uploaded on 02/13/2012 for the course ACCT 101 taught by Professor Na during the Fall '10 term at HKUST.

Ask a homework question - tutors are online