Chapter 6

Question 1

revenues

Answer 1

inflows or other enhancements of assets (of an entity or settlements of its liabilities or both)

from delivering g/s, from business main ops

important not only know how much rev to recognize (record) but WHEN

Question 2

five steps to rev recognition

Answer 2

1) identify the contract

2) identify the performance obligations

3) determine the transaction price

4) allocate the transaction price

5) recognize rev when (or as) each performance obligation is satisfied

Question 3

1) identify the legal contract

Answer 3

legal rights of seller and customer

Question 4

2) identify the performance obligations

Answer 4

can be single or multiple

Question 5

3) determine the transaction price

Answer 5

the amount seller is entitled to receive from customer (for both single and multiple)

Question 6

4) allocate the transaction price

Answer 6

if single - no allocation required

if multiple - allocate a portion to each performance obligation

Question 7

5) recognize rev when (or as) each performance obligation is satisfied

Answer 7

if single - at one point in time or over a period of time

if multiple - at whatever time is appropriate for each performance obligation

Question 8

recognizing rev at a single point in time BREAK DOWN

Answer 8

indicators are used to determine when control has transferred from seller to customer

customer more likely to control a g/s if customer has

• an obligation to pay the seller
• legal title to the asset
• physical possession of the asset
• assumed the risks/rewards of ownership
• accepted the asset

Question 9

example for recognizing rev at a single point in time

Answer 9

Corp A sells stuff to Corp B

when should Corp A recognize revenue?

1) Dec 20, 2023 Corp A sells 1,000 things at price of 240 each promising payment in 30 days
- NOOOO

2) Jan 1, 2024 Corp A delivers 1,000 things at 240 each to Corp B
- YESSSS

Journal entry
Debit: AR 240,000
Credit: Sales Rev 240,000

Question 10

for recognizing rev at a single point in time example, what would Corp journal entry be once receive payment from Corp B

Answer 10

Debit: cash
Credit: AR

Question 11

recognizing rev over a period of time

Answer 11

1) the customer consumes the benefit of the seller’s work as it is performed
ex: cleaning service

2) the customer controls the asset as it is created
ex: constructing a building extension

3) seller is creating an asset that has no alternative use to the seller and the seller has the legal right to receive payment for progress to date
ex: order of jets customized for US Air Force

NOTE: recv is recognized in proportion to amt of performance obligation that has been satisfied