Terms in this set (32)
Revenue Recognition Principal says you should recognze revenue when
(1) is is REALIZED or REALIZABLE and
(2) it is Earned
Earlier recognition is appropiate if
there is a high degree of certainity about the amount of revenue earned
Delayed recognition is appropriate if
(1) degree if uncertainty anbout amount of revenune/cost is high
(2) sale doesn't represent substantial completion of earnings process
3 times to recognize revenue
(1) At point of sale
(2) Before delivery
(3) After delivery
Rev. Recgonition for long tern construction, 2 types
(1) Percentage of completion
(2) Completed Contract
JE: To Record cost of construction
Consruction in Process
JE: To record progress billings
Billings on CIP
JE: To record collections
JE: To recognize revenue and gross profit
CIP (=Gross Profit)
Revenue from long term contracts
JE: To record completion of contract
Billings on CIP
Percent Complete Formula
Costs incurred to date/ Most recent estimate of total costs
Revenue to be recognized to date
Percent Complete X Estimated Total Revenue
Current-Period Revenue Formula
Revenue to be recognized to date - Revenue recognized in prior period
In completed contract method, revenue is recognized...
..in year that it is completed along with the closing entries
Final Entries on completed contract to recognize revenue
Billings on CIP
Rev. From Long Term Projects
Construction in Process
Revenue Recognition after delivery, 2 main types
(1) Installment-Sales Method
(2) Cost-Recovery Method
Installation Method: recgonize income in ____ periods, and recognize rev/costs in ____ period
Installation Method: Defer ____ ___ to periods in which cash is collected. ____ and _____ expenses are not deferred.
Gross Profits, Selling/ Administration
The revenue recognition principle states that revenue is recognized when it is:
realized and earned
Revenue from selling products is generally recognized
at the point of sale.
When a seller is exposed to continued risks of ownership through return of the product, the seller should recognize revenue:
at the time of sale only if 6 specific conditions are met
The accounting profession requires the percentage-of -completion method be used when
1. the contract specifies the enforceable rights regarding goods or services to be provided and received by the parties.
2. the buyer can be expected to satisfy all obligations under the contract.
3. the contractor can be expected to perform the contractual obligations.
The completed-contract method should be used only when
A. an entity has primarily short-term contracts.
B. there are inherent hazards in the contract beyond normal, recurring business risks.
C. the conditions for using the percentage-of-completion method cannot be met
A very popular measure used to determine the progress toward completion under the percentage-of-completion method is the
The Billings on Construction in Process account is reported as
either a current asset or current liability
Under the completed-contract method, what is recorded each period during construction?
A loss on an unprofitable long-term contract is recognized in the current period under:
both the completed-contract and the percentage-of-completion methods
A loss in the current period on a contract expected to be profitable upon completion is recognized in the current period under:
the percentage-of-completion method only
Which of the following is deferred to future periods under the installment sales method?
Deferred gross profit on installment sales is generally classified as a (an):
No profit is recognized until cash receipts exceed the seller's cost of the merchandise under which method
Cost recovery method
Under the cost recovery method, which of the following is reported in the period of sale
Both sales and cost of goods sold.
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