Cpa Far 3 Revenue & Expense Recognition

Front 1

Revenue should be recognized when...

Back 1

Revenue should be recognized when it is realized and when it is earned

Front 2

4 criteria should be met for each element of the contract...

Back 2

1. Evidence of arrangment exists (signed contract)
2. Services have been rendered (risk & reward transfer)
3. Price is fixed and determinable (no price contingencies)
4. Collection is reasonably assured (standard collection terms)

Front 3

Revenue from the sales of products or the disposals of assets is recognized on the date of sale (delivery date)

4 criteria apply for a sale to take place

Back 3

1. delivery of goods or setting aside goods ordered
2. transfer of legal title
3. Asset use
4. services rendered

Front 4

IFRS revenue recognition (4 types of revenue)

Back 4

1. Sale of Goods
2. Rendering of Services
3. Interest, Royalties & Dividends
4. Construction contracts

Revenue recognized when cost is measured reliably and probable that economic benefit will flow to the entity.

others include risk & reward, not retain managerial involvement, and stage of completion.

Front 5

Multiple Element Arrangement (US GAAP)

Back 5

Sale contract includes multiple products or services. the Fair Value of the contract must be allocated to separate contract elements.

Front 6

Exceptions and Other Special Accounting Treatments (7)

Back 6

1. Deferred Credits
2. Installment Sales
3. Cost Recovery Method
4. Nonmonetary Exchanges
5. Involuntary Conversions
6. Net Method for Accounting for Trade (Sales) Discounts
7. Percentage of Completion Contract Accounting

Front 7

Deferred Credits

Back 7

Liability = Earn it or Return it

Cash is received before it is earned

Examples...prepaid interest income, prepaid rental income, prepaid royalty income

Front 8

Installment Sales

Back 8

(not GAAP) Revenue is recognized as collections are made.

Front 9

Cost Recovery Method

Back 9

(not GAAP) No profit is recognized on a sale until all costs have been recovered.

Front 10

Nonmonetary Exchanges

Back 10

Recognition of revenue depends upon the type of exchange.

Front 11

percentage of completion contract accounting

Back 11

revenue is recognized as production takes place for long term constructions contracts having cost that can be reasonable estimated.

If cost can not be reasonably estimated the completed contract method must be used.

Front 12

Expenses are...

Back 12

Expenses are reductions of assets and/or increases of liabilities during a period of time.

Recognized according to the matching principal

Front 13

Realization occurs...

Back 13

Realization occurs when the entity obtains cash or the right to receive cash or has converted a noncash resource into cash.

(really happens in the real world)

Front 14

Matching Principle

Back 14

Matching of revenues and costs is the simultaneous or combined recognition of revenues ad expenses that results directly and jointly from the same transactions or events.

Front 15

Accrual Accounting

Back 15

Accrual Accounting is required by GAAP and is the process of employing the revenue recognition rule and matching principle to the recognition of revenues and expenses.

Front 16

percentage of completion contract accounting

Back 16

revenue is recognized as production takes place for long term constructions contracts having cost that can be reasonable estimated.

If cost can not be reasonably estimated the completed contract method must be used.

Front 17

Expenses are...

Back 17

Expenses are reductions of assets and/or increases of liabilities during a period of time.

Recognized according to the matching principal

Front 18

Realization occurs...

Back 18

Realization occurs when the entity obtains cash or the right to receive cash or has converted a noncash resource into cash.

(really happens in the real world)

Front 19

Matching Principle

Back 19

Matching of revenues and costs is the simultaneous or combined recognition of revenues ad expenses that results directly and jointly from the same transactions or events.

Front 20

Accrual Accounting

Back 20

Accrual Accounting is required by GAAP and is the process of employing the revenue recognition rule and matching principle to the recognition of revenues and expenses.

Front 21

Accrued Assets (or accrued revenues) represents

Back 21

The recognition of an Accrued Assets (or accrued revenues) (i.e. interest receivable ) represents revenue recognized or earned through the passage of time (or other criteria) not yet paid to the entity.

Earned not paid by client

Front 22

Accrued Liabilities (or accrued expenses) represents

Back 22

Accrued Liabilities (or accrued expenses) represents expenses recognized or incurred through the passage of time (or other criteria) but not yet paid by the entity.

Example: Accrued interest payable, accrued wages...

Front 23

Estimated Liabilities represent

Back 23

Estimated Liabilities represent the recognition of probable future changes that result from prior act.

Example: the estimated liability of warranties, trading stamps or coupons.

Front 24

Expired Cost are..

Back 24

Expired cost are costs that expire during the period and have no future benefit

Example: insurance expense, cost of goods sold, period costs such as selling, general and administrative expenses.

Front 25

Unexpired costs should...

Back 25

Unexpired costs should be capitalized and matched against future revenues.

Deferred charges

Example: fixed asset and inventory

stay on the balance sheet (for now)

Front 26

percentage of completion contract accounting

Back 26

revenue is recognized as production takes place for long term constructions contracts having cost that can be reasonable estimated.

If cost can not be reasonably estimated the completed contract method must be used.

Front 27

Expenses are...

Back 27

Expenses are reductions of assets and/or increases of liabilities during a period of time.

Recognized according to the matching principal

Front 28

Realization occurs...

Back 28

Realization occurs when the entity obtains cash or the right to receive cash or has converted a noncash resource into cash.

(really happens in the real world)

Front 29

Matching Principle

Back 29

Matching of revenues and costs is the simultaneous or combined recognition of revenues ad expenses that results directly and jointly from the same transactions or events.

Front 30

Accrual Accounting

Back 30

Accrual Accounting is required by GAAP and is the process of employing the revenue recognition rule and matching principle to the recognition of revenues and expenses.