01.05- Revenue and Expense Recognition

Question 1

Under ACCRUAL ACCOUNTING, when are REVENUE and GAINS recognized?

Answer 1

When they are…

Earned
Realizable

Question 2

When is revenue EARNED?

Answer 2

When the process is complete (goods delivered)

Question 3

When is revenue REALIZABLE?

Answer 3

Collect cash or have a claim to cash

Question 4

When is REVENUE RECOGNIZED? (4 things)

Answer 4

• A binding arrangement exists (signed contract)
• Services rendered or delivery occurred
• Fixed or determinable price exists
• Collection is reasonably assured

Question 5

Under ACCRUAL ACCOUNTING, when are EXPENSES and LOSSES recognized?

Answer 5

When the economic benefit is used up (Consumed)

Question 6

What is CAUSE AND EFFECT in relation to when EXPENSES OR LOSSES are INCURRED? Example?

Answer 6

Expenses that produce revenue can be directly matched at a point in time.

Ex. Cost of goods sold

Question 7

What is SYSTEMATIC AND RATIONAL ALLOCATION in relation to when EXPENSES OR LOSSES are INCURRED? Example?

Answer 7

Expenses that produce revenue can be matched to a long period of time and allocated accordingly

Ex. Depreciation

Question 8

What is IMMEDIATE RECOGNITION in relation to when EXPENSES OR LOSSES are INCURRED? Example?

Answer 8

Expenses are not directly related to specific benefits.

Ex. Salaries

Question 9

What are the four AREAS OF DISCLOSURE for RISKS AND UNCERTAINTIES?

Answer 9

• Nature of operations
• Use of estimates
• Certain significant estimates
• Current vulnerability associated with certain concentrations

Question 10

What is included in the disclosure of the NATURE OF OPERATIONS?

Answer 10

how the entity generates revenue

ex. major products or services

Question 11

If a company provides multiple products, what do they include the in NATURE OF OPERATIONS?

Answer 11

An indication of each products importance

Question 12

What do Not-for-profit entities include in NATURE OF OPERATIONS?

Answer 12

A description of their principal services and their revenue sources.

Question 13

If estimates are uses, what must they be in accordance with? What else must be stated with estimates?

Answer 13

• GAAP

- must state that an estimate is being used, and results may vary.

Question 14

When must a business disclosure that they are VULNERABLE DUE TO CERTAIN CONCENTRATIONS?

Answer 14

When they did not diversify

Question 15

What is the single source of US GAAP for nongovernmental entities?

Answer 15

FASB ASC

Question 16

What are STATEMENTS ON FINANCIAL ACCOUNTING CONCEPTS (SFAC)?

Answer 16

Ideas of the FASB that represent theoretical framework which should guide accounting and reporting.

Question 17

What is the EMERGING ISSUES TASK FORCE (EITF)?

Answer 17

Accounts for new and unusual financial transactions. Short-term issues.

Question 18

What is the SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in the NOTES TO THE FINANCIAL STATEMENTS?

Answer 18

Describes the selection of significant accounting principles and methods used in financial statements.

Question 19

What is the SUMMARY OF SIGNIFICANT ASSUMPTIONS in the NOTES TO THE FINANCIAL STATEMENTS?

Answer 19

For future projections, this describes the assumptions used to estimate future amounts.

Question 20

What are the OTHER NOTES TO THE FINANCIAL STATEMENTS in the NOTES TO THE FINANCIAL STATEMENTS?

Answer 20

Contains all other relevant information. (materiality)