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COMM 457 - CH. 4
Terms in this set (11)
inflows of economic benefits from a company's ordinary operating activities.
general revenue recognition criteria
1. It is probable that the economic benefits will flow to the company.
2. The amounts of these benefits can be measured
sale of goods
1. Significant risks and rewards of ownership of the goods have been transferred to the buyer.
2. Seller has no continuing involvement or control over the goods.
3. Amount of the revenue can be reliably measured.
4. Probable that the economic benefits from the transaction will flow to the seller
5. Costs incurred or that will be incurred to complete the transaction can be reliably measured
provision of services
1. Amount of the benefits can be reliably measured.
2. Probable that the economic benefits from the transaction will flow to the seller.
3. Seller must be able to estimate the total costs that will be incurred to provide the contracted services--> Normally, the seller will be able to determine this with sufficient reliability because these estimates would have been prepared prior to the company entering into the contract.
4. Portion of the total services completed can be reliably measured (if services are ongoing).
receipt of interest, royalties, and dividends
1. Amount of the revenue can be reliably measured b/c companies will know:
- the interest rate and outstanding principal,
- the royalty rate and the base to which it is applied
- the dividend rate and number of shares held
2. Probable that the economic benefits from the transaction will flow to the company.
price of a product or service that both the buyer and seller agree upon
typical sales discount is "2/10, n/30,"
- means that the customer could take a 2% discount if they paid within 10 days of purchase
- or, if this was not done, the net (or full) amount of the account would be due within 30 days.
contra revenue account
records sales discounts, allowances and sales returns
multi-step income statement
1. Sales Revenue - revenues earned by the company from its operating activities
2. Gross Profit - difference between sales revenue and the cost of goods sold
3. Profit from operations - difference between gross profit and the company's operating expenses
4. Profit before income tax - not from operating activities. Includes revenues such as interest earned on employee loans or dividends received from short-term investments and expenses such as interest paid on loans.
5. Net income (or loss)
total change in the shareholders' equity (or net assets) of the enterprise from non-owner sources
basic earnings per share
expresses net income, after deducting preferred dividends, on a per-share basis.
net income - preferred dividends / weighted average # of common shares outstanding
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