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20 Cards in this Set
- Front
- Back
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Delayed recognition is appropriate if?
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--degree of uncertainty concerning the amount of revenue or costs is sufficiently high
or-- sale does not represent substantial completion of the earnings process. |
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Companies usually meet the requirements for revenue recognition at the point of delivery excpet in what types of situations?
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1-sales with buyback agreements
2-sales when right of return exsits and 3-channel stuffing and trade loading |
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What is the rule for buyback agreements
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right of return exsists at a price that covers all costs and holding costs and this sale stays on the books as a liability so basically, there is no sale.
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What are the 6 conditions for recognizing revenue when right of return exists?
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1-price fixed and determinable at dos
2-buyer paid without contingencies 3-buyer still must pay even if a theft/distruction occurs. 4-buyer has seperate economic substance 5-the seller does not have obligations to bring about the resale 6-the seller can reasonable est. the amounts of future returns |
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what is the rational for % completion method?
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the buyer and seller have enforceable rights
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When must you use % of completion?
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When cost estimates are reasonably dependable
1-contract is clear about terms and enforceable rights 2-buyer is expected to satisfy all obligations and 3. contractor can be expected to perform under contract. |
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when Completed Contract method?
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short term contracts, inherient hazards, or can't meet the standards for % complete
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% Complete=
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costs to date/most recent total cost estimate
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What about exp. Rev. and g/p with the cc method? Do you recognize it?
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NO! None of them!
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How are CIP and Billings presented on the B/S?
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-They are netted!
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How are Billings and CIP reported on the B/S?
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All under Inventory=>
Current Liabilities: Billings>CIP called “Billings in excess of costs and profits” Current assets: Costs and Profits > Billings called “Costs and profits in excess of Billings” |
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How do you get Loss?
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Rev Rec-Costs Rec=Loss
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Cost to Cost basis implies you use the total what?
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-the total Costs Incurred so far!
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What is the j/e to record a loss?
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Dr. Construc exp
Cr. CIP (loss) Cr. Rev. from long term contract *Note that this is in line with the typical sales entry |
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To record the Loss on Long term contract under the CC method, what would the j/e look like?
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Dr. Loss on Construction contract
Cr. CIP (Loss) |
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Regular sales entry
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Dr. Cash
Cr. Sales |
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Closing sales entry?
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Dr. Sales
Cr. Income summary |
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To records COGS entry?
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dr. Cost of Goods Sold
cr. Inventory |
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Closing sales Cogs?
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Dr. Income Summary
Cr. COGS |
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How do you do the % completion method?
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Record costs, billings and cash reciepts.
Then you take rev recognized current year less costs recognized current year and that = GP current year. You need an entry for this j/e Dr. CIP Gross profit Dr. Construction Expense for the costs Cr.Construction Revenue In the last year you need to dr. billings for the Contract Price Cr. Construction in process for the Contract price. Remember* the gp and expense =the Construction revenue. This is why GP and Exp for current year are both a Dr. They are being matched to the Revenue which is the Cr. for the current period. |
