Ered and even partially paid for revenue is not

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ered, and even partially paid for, revenue is not recognized until the product is delivered . final payment is made or agreed to be made. 8:Nonrefundable fees. Sellers sometimes receive fees that are nonrefundable to the cus- r. An example is a health club initiation fee or a cellular phone activation fee. Some sell- ish to record these cash receipts as revenue to boost current sales and income. However, en though cash is received and nonrefundable, revenue is not recognized until the product ;:elivered or the service performed. Until that time, the company reports the cash received liability (deferred revenue). Once the obligation is settled, the liability is removed and ~nue is reported. revenue is only recognized when it is earned and when it is realized or realizable. This J::::::::r:;;es- that the seller has performed its obligations (no contingencies exist) and the buyer is an 1!Ii~":ldent party with the financial capacity to pay the amounts owed. 3IJSINESS INSIGHT Gross versus Net Revenues '::;1, Groupon, Inc., announced its intentions to offer stock to the public in an initial public offering __ The company's original SEC registration statement disclosed that the company recorded revenue at the amount it received from selling Groupons (coupons). For example, when Groupon sold a restaurant gift -;cate for $20, it would record the full amount of $20 even though a hefty portion (say $9 for example) is ~ me restaurant owner. By recording revenues at "gross," Groupon did not comply with GAAP because it no inventory, does not determine the product or service price, and does not perform the service. The SEC ed and Groupon restated revenues in an amended SEC filing in September 2011. Groupon now reports es at "net," which is the commission on sales, rather than the total value of online coupons. Returning to -sstaurant example, Groupon's amended revenue would be $11, not $20. Footnote 2 of its latest SEC filing the following. Shortly after the amended filing, Groupon's Chief Operating Officer left the firm. Revenues ($ OOOs) 2008 2009 2010 As previously reported . Restatement adjustment . As restated . $ 94 (89) $ 5 $713,365 (400,424) $312,941 $30,471 (15,931) $14,540 ntage-of-Completion Revenue Recognition er revenue recognition challenge arises for companies with long-term sales contracts . g more than one period), such as construction companies, consultants, and defense ctors. For these companies, revenue is often recognized using the percentage-of-comple- method, which recognizes revenue by determining the costs incurred under the contract ive to its total expected costs.
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To illustrate, assume that Bayer Construction signs a $10 million contract to construct a building. Bayer estimates construction will take two years and will cost $7,500,000. This mean the contract yields an expected gross profit of $2,500,000 over two years. The following table summarizes construction costs incurred each year and the revenue Bayer recognizes.
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