Chapter 6 Flashcards
Five key steps of core revenue recognition
Identify the contract, identify performance obligations, determine transaction price, allocate transaction price, recognize revenue
How does a seller allocatedtransaction price to specific performance obligation
Stand-alone selling price
What criteria determines it a company can recognize revenue over time.
Consumer consumes benefit as work is being done.
Residual approach
Total transaction price - known contract obligation prices
Adjusted market Assessment approach
Price others are selling it for
Expected cost + margin approach
Cost plus appropriate margin
Functional IP
Stand alone value, one time purchase, revenue recognized once
Symbolic IP
No standalone functionality, mandatory updates, revenue recognized over-time
Bill and hold arrangement
Customer pays seller to reserve item to ship at a later date; revenue recognized at delivery
Consignment
Goods transferred to a third party to sell
Contract liability
Seller received payment before satisfying performance obligation
Contract asset
Seller has a right to receive payment after satisfying performance obligation
Customer options (gift cards, discounts, etc)
Performance obligation
Expected value
The possible amount multiplied by it probability
Most likely method
Full bonus or no bonus
CIP
Debit, tracks costs of a long term project that isn’t complete.
Disclosure notes
Things that can affect future cash flows / revenues
Revenue recognized this period formula
Total estimated revenue * percentage completed to date - revenue recognized in prior periods
Periodic loss
Expected to have overall profit
Overall loss
Project expected to have overall loss
To record construction costs
CIP
various accounts
To record progress Billings
Accounts receivable
Billings on construction contract
to record cash collections
Cash
accounts receivable
How to record periodic loss recognizing revenue over time
Cost of construction
Revenue from long term contracts
CIP (leftover)
When revenue < cost
Gross profit formula for long term contracts
Contract price - total estimated costs *% complete
Recording a loss on recognizing revenue upon completion before final year
Loss on long term contracts
CIP
