Acc 319 Chapter 18

Front 1

According to the revenue recognition principle revenue is recognized?

Back 1

1.when it is realizable
2. when it is earned

Front 2

When are revenues realized?

Back 2

when goods and services are exchanged for cash or claims to cash

Front 3

What are the 4 type of revenue transactions that that are recognized in accordance with the revenue recognition principle?

Back 3

1. Revenue from selling products
2. Revenue from services rendered
3. revenue from permitting others to use enterprise assetss(interest,rent, royalties)
4.Revenue from disposing of assets other than products.

Front 4

when are revenues earned?

Back 4

when the entitiy has substantially accomplished what it must do to be entiltled to the benefits represented by the revenues

Front 5

when are the revenues from sales recognized?

Back 5

date of sale (date of delivery)

Front 6

when are the revenues from fees or services recognized?

Back 6

when the services are performed and billable

Front 7

when are the revenues from interest rents and royalties recognizable?

Back 7

as time passes or assets are used

Front 8

Problems of implementation can arise because of

Back 8

1. Sales with buyback agreements,
2. Revenue recognition when right of return exists,
3. Trade loading and channel stuffing,

Front 9

If there is a sale (even if there is a transfer of
title) and the seller agrees to buy-back the product
for an amount equal to the cost of the inventory
and related holding cost?

Back 9

No sale do not recognize revenue

Front 10

But if the sellers buyback agreement is for less than
the cost plus holding costs?

Back 10

then it might need more
careful consideration

Front 11

IF YOU DO NOT RECORD THE _________, DO NOT
RECORD THE _______!

Back 11

revenue, cost

Front 12

WHEN RIGHT OF RETURN EXISTS, 6 CRITERIA MUST BE MET what are they?

Back 12

The price must be fixed and the buyer obligated to pay,
regardless of how much they sell it for and seller is not required
to help them sell it
– The buyer has risk of loss
– The buyer is not a “credit risk ”
– The returns can be reasonably estimated

Front 13

If all 6 conditions are met?

Back 13

than recognize revenue less any returns allowances

Front 14

if not to any of the 6 conditions?

Back 14

If NO to any, then no sale until the sooner of (1) cash collecti on or (2)
all 6 criteria become met.

Front 15

XYZ sells 100 widgets for $100 to ABC on credit. There are no
rights to return or buyback. Has the revenue been earned?
Should it be recognized?

Back 15

yes

Front 16

Say that the terms grant ABC the right to return the widgets
if they do not sell them?
Therefore, what questions do you have about the widgets and
ABC now?

Back 16

l Can the returns be reasonably estimated?
l Is ABC a credit-worthy company?
If both are yes, then the sale should be recorded. If either is
no, then it should not yet be recorded, until the cash is
received or the criteria are met– whichever comes first.

Front 17

what are the two methods of accounting for long-term construction contracts?

Back 17

Pecentage of completion Method
Completed contract method

Front 18

The percentage of completion method .....

Back 18

recognizes revenues, costs, and gross profit as progress is made toward completion on a long term contract.

Front 19

the completed contract method......

Back 19

revenue and gross profit are recognized only at the point of sale- that is when the contract is completed.

Front 20

What is the rationale for using the
percentage-of-completion accounting method for longterm
construction contracts?

Back 20

under most of these contracts the buyer and seller have obtained enforceable rights. A continous sale occurs as the work progresses and revenue should be recognized accordingly.

Front 21

When does the profession require the
percentage-of-completion method be used?

Back 21

The profession requires that the percentage-of-completion method
MUSTbe used when estimates of progress toward completion,
revenues, and costs are reasonably dependable and three specific
conditions exist. They are:
1. The buyer can be expected to satisfy all obligations under the
contract.
2. The contract clearly specifies the enforceable rights regarding
goods or services to be provided and received by the parties, the
consideration to be exchanged, and the manner and terms of
settlement.
3. The contractor (seller) can be expected to perform the contractual
obligation.

Front 22

When should the completed-contract
method be used?

Back 22

only!
1. when an entity has primarily short term contracts
2. when conditions for % of completion can not be met
3. there are inherrent hazards in the contract beyond the normal business risks.

Front 23

Percentage of Completion, what is it?

Back 23

Percentage completion provides a very good matching of revenue
to expense as it starts with costs incurred in determining the
amount of revenue to record– called the cost-to-cost method.

Front 24

What impact do billings have on revenue recognition
under the percentage of completion method?

Back 24

none, costs drive revenue

Front 25

what are the three methods to determine the extent of progress toward completion?

Back 25

1. cost-to-cost method
2. efforts-expended method
3. units of work performed method

Front 26

What are input measures?

Back 26

(costs incurred, labor hours worked) made in terms of efforts devoted to a contract

Front 27

what are output measures?

Back 27

(tons produced, stories) made in terms of results

Front 28

What is the cost to cost basis (% of completion)?

Back 28

% Complete=costs incurred/ estimated total costs

Front 29

what is the formula for the TOTAL revenue to be recognized to date?

Back 29

Revenue = % complete X Contract Value

Front 30

what is the formula for the amount of current period revenue?

Back 30

revenue to be recognized to date - revenue recognized in prior periods = current period revenue

Front 31

What is recognition?

Back 31

the process of formally recording or incorparating an item in the accounts and financial statements of an entity.

Front 32

What is Realization?

Back 32

the process of converting noncash resources and rights into money and is most precisely used in accounting and financial reporting to refer to sales of assets for cash or claims to cash.

Front 33

Common reasons for departures from the sale basis?

Back 33

A desire to recognize earlier in the earning process
A desire to delay the recognition of revenue beyond the time of the sale.

Front 34

The SEC believes that revenue is realized and earned when ALL of the following criteria are met? (4)

Back 34

1. persuasive evidence of an arrangement exists
2. delivery has occurred or services have been rendered
3. the seller's price to the buyer is fixed or determinable
4. collectibility is reasonably assured.