Chapter 6 Flashcards
net income attributable to non-controlling interests
company consolidates a subsidiary that it controls, but it holds less than 100% ownership
revenue recognition
timing and amount of revenue reported by the company
entity should recognize revenue to depict transfer of goods or services to customers in amount that reflects consideration to which entity expects to be entitled in exchange for goods and services
revenue recognition process
1) identify contract with customer
2) identify performance obligations in contract
3) determine transaction price
4) allocate transaction price
5) recognize revenue when or as entity satisfies a performance obligation
performance obligation
entity must determine how many distinct goods and services it has agreed to provide the customer
variable consideration
price concessions, volume discounts, rebates, refunds, credits, incentives, performance bonuses, royalties; can require significant estimation by entity’s management
consignment
consignor delivers product to consignee but retains ownership until consignee sells product to ultimate customer
contract liability
settings where company’s customers pay for product or service prior to delivery; entity’s obligation to transfer goods or services for which entity has received consideration
**aka unearned revenue or deferred revenue
contract asset
amount that company expects to receive from the customer for performance to date but for which it is not yet entitled to payment
credit sales
companies sell to other companies and do not receive cash upon delivery- they offer credit terms
net realizable value
net amount that the seller expects to collect
allowance for doubtful (uncollectible) accounts
estimate dollar amount of uncollectible accounts each time it issues financial statements- total receivable less allowance for doubtful accounts
aging analysis
amount of expected uncollectible accounts usually based on analysis of receivables based on experience
percentage of sales- doubtful accounts
means fo estimating uncollectible accounts; for example, could use 3% of total sales
bad debts expense
adjusting entry at year-end, uncollectible accounts estimated and recorded; contra-asset account offsetting (reducing) accounts receivable
cookie jar reserve
build up a reserve during good years that can be drawn down in subsequent periods
net operating profit after taxes (NOPAT)
net income- { (non-operating revenues-nonoperating expenses) x (1- statutotry tax rate)}
measures opearting profitability
return on net operating assets (RNOA)
NOPAT/average net opearting assetes
similar to return on asset except it excludes all non-operating components of income and investment
return on capital employed
variation on RNOA; examines the return on net operating assets before income tax; measures performance of business units and divisions within a larger organization
accounts receivable turnover (ART)
sales revenue/average accounts receivable
number of times each year that accounts receivable is converted into cash
average collection period (ACP)
average accounts receivable/average daily sales= 365/accounts receivable turnover
how many days of sales revenue are invested in accounts receivable; how long on average it takes the company to collect cash after the sale
channel stuffing
company uses market power over customers or distributors to induce them to purchase more goods than necessary to meet their needs
income smoothing
choose when to sell an asset to recognize a gain and maintain steady improvements in net income
big bath
recording nonrecurring loss in a period of already depressed income
arm’s length
transfer inventories or other assets to related entitles not recorded until later
