320 Lesson 4a

320 Lesson 4a - Week4 RevenueRecognition RevenueRecognition...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Revenue  Recognition Revenue  Recognition Week 4
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Seller Buyer Goods Services purchase with cash/credit receives the goods right to return
Background image of page 2
Earnings approach to revenue recognition focuses on the earnings process and revenue is recognized when the performance is substantially complete and the collection is reasonably assured Contract-based approach focuses on the contractual rights and obligations created by the sales contract and recognizes revenue when the rights and obligations change
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Revenue Defined Income – increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those related to contributions from equity participants .” The Framework includes both revenue and gains Revenue – income that arises in the course of ordinary activities of an entity Criteria for recognition: 1. Probable that future economic benefits will flow to the entity 2. Benefits can be measured reliably Equity = net assets
Background image of page 4
Transactions and events that trigger revenue 1. Sale of goods 2. Rendering of services 3. Use by others of company’s assets yielding interest, royalties and dividends Recognize at a point in time Recognize over time
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Sale of Goods Conditions to be met: 1. The entity has transferred to the buyer the significant risks and rewards of ownership 2. The entity ceases to be involved with the items normally associated with ownership nor does it have control over the goods 3. The amount of revenue can be measured reliably 4. It is probable that the economic benefits from the transaction will flow to the entity 5. The costs incurred or to be incurred with respect to the transaction can be measured reliably
Background image of page 6
Not revenue if company retains risks of ownership: company retains an obligation for unsatisfactory performance not covered by normal warranty provisions when receipt of revenue is contingent on buyer selling the goods when goods are shipped subject to installation and installation contract is a significant part of the contract when buyer has a right to rescind purchase for a reason specified in the sales agreement Sale and installation of major computer system like SIMS; seller trying to enter a new market and sends goods to a buyer promising to delay receiving payment and to take goods back if not sold; if sales agreement specifies that goods will be delivered by a certain date or installed by a certain date Not apply to liens against goods sold to ensure receipt of payment.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Recognition at Delivery Goods are transferred to the buyer Risks and rewards transfer with the goods Amount is either received or receivable – therefore, can be measured Entity no longer controls the goods Costs are usually known and measurable
Background image of page 8
Goods are delivered BUT not possible to measure revenue OR some expenses still unknown e.g. magazine publisher who sends issues to retail outlets for
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 32

320 Lesson 4a - Week4 RevenueRecognition RevenueRecognition...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online