Introduction The following research paper is about the new joint revenue recognition principles that were unveiled by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), which standardizes generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) on recognition of revenue in the United States. The new joint revenue recognition principle was created to increase the financial transparency and the comparability within the industries in the United States of America, and as well as the industries throughout the world. The companies in the United States currently use the GAAP standards and the rest of the world uses the IFRS. But each country has
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Ryerson’s paper on changes proposed to GAAP for revenue recognition, he used the example of contracts with a customer under the asset and liability model. He provided two reasons on why he chose to focus on the contracts with a customer, first was that the contracts that present merchandise happen in the real world and is what gives life to most of the companies in the world (Ryerson) and second was that the majority of the revenue recognition journalism deals with contracts with the customer (IASB, 2007, par.27). Frank Ryerson also states that based on the contract with a customer, revenue is recognized when the specific asset or liability in the contract increases or decreases (Ryerson). The previous definition describes that when an asset or liability that is located in the contract when dealing with a customer, increases or decreases in value, that is when the revenue can be realized in the financial statements. Up until that point, the revenue cannot and must not be recognized in the financials. One question that might arise is, when the asset or liability is valid, and that is when the entity or company agrees upon the contract with the customer. When both parties agree upon the contract and the promise is made to both sides, the asset or liability is now in play. Also, the promise is a known statement of when the good or service will be delivered. In the case of the asset and liability model, the asset or liability is defined as a good or …show more content…
The first assumption from the IASB was that the future benefit from the sale of the good or service would continue to stream to the entity (Gallistel). That assumption means that the revenue from the good or service must still hold future profit. The second assumption states that the cost or the value of the merchandise that was sold was to be able to be measured with reliability. Which means the cost or the value of the goods or services must be dependable. Mentioned above under IAS 18, the revenue must be measured at fair value (IAS 18). The fair value can be calculated by finding the price settled on between the entity and the buyer after any discounts are subtracted. For example, if the agreed upon price was $200 and the discount agreed upon was $30, the difference would be $170. The fair value may not be able to be calculated, if that is the case, the value of the goods or services being provided are how the entity would measure the value. But the problem with not being able to find the fair value is that the value cannot be placed into the balance sheet or the income statement. The fair value must be found to have the value be recognized (IAS
Ryerson’s paper on changes proposed to GAAP for revenue recognition, he used the example of contracts with a customer under the asset and liability model. He provided two reasons on why he chose to focus on the contracts with a customer, first was that the contracts that present merchandise happen in the real world and is what gives life to most of the companies in the world (Ryerson) and second was that the majority of the revenue recognition journalism deals with contracts with the customer (IASB, 2007, par.27). Frank Ryerson also states that based on the contract with a customer, revenue is recognized when the specific asset or liability in the contract increases or decreases (Ryerson). The previous definition describes that when an asset or liability that is located in the contract when dealing with a customer, increases or decreases in value, that is when the revenue can be realized in the financial statements. Up until that point, the revenue cannot and must not be recognized in the financials. One question that might arise is, when the asset or liability is valid, and that is when the entity or company agrees upon the contract with the customer. When both parties agree upon the contract and the promise is made to both sides, the asset or liability is now in play. Also, the promise is a known statement of when the good or service will be delivered. In the case of the asset and liability model, the asset or liability is defined as a good or …show more content…
The first assumption from the IASB was that the future benefit from the sale of the good or service would continue to stream to the entity (Gallistel). That assumption means that the revenue from the good or service must still hold future profit. The second assumption states that the cost or the value of the merchandise that was sold was to be able to be measured with reliability. Which means the cost or the value of the goods or services must be dependable. Mentioned above under IAS 18, the revenue must be measured at fair value (IAS 18). The fair value can be calculated by finding the price settled on between the entity and the buyer after any discounts are subtracted. For example, if the agreed upon price was $200 and the discount agreed upon was $30, the difference would be $170. The fair value may not be able to be calculated, if that is the case, the value of the goods or services being provided are how the entity would measure the value. But the problem with not being able to find the fair value is that the value cannot be placed into the balance sheet or the income statement. The fair value must be found to have the value be recognized (IAS