Deck #2 (F1) Flashcards
5 components of FS
balance sheet, income statement, comprehensive income, cash flows, owners equity
recognition criteria
measurable, relevant, reliable
rev rec principle
revenue recognized when (1) performance obligation satisfied (2) transfer of good or service occurred
expense rec principle
expenses are incurred to generate revenue. “matching principle”
Whats on the balance sheet?
Assets, Liabilities, Equity
Whats on the Income Statement?
Revenue, Expense, Gain, Loss
Whats on the non operating portion of the IS?
Gains and Losses
Format of Multiple Step IS
Net Sales -COGS = Gross Margin -Selling -General, Admin -Depreciation =Income from Operations \+/- (other) revenue/gains =Income before unusual \+/- unusual items =Income before tax -Tax expense NET INCOME
Format of Single Step IS
Revenue and Gain
-Expense and Loss
= NET INCOME
Name Current Assets
cash, trading securities, AR, Notes receivable, Inventory, prepaid expenses
Name Current Liabilities
AP, NP, Int Payable, Salaries Payable, Unearned Rev, Current Portion of LT Debt
5 step approach to rev rec
ISTAR
- Identify contract
- Separate performance obligations
- Transaction price
- Allocation transaction price
- Recognize Revenue
Example of separate performance obligations
Designing a warehouse, building a warehouse. Recognize Revenue separately
How do you deal with discounts in a contract?
allocate proportionally to each obligation
JE to record unearned sales revenue (product not transferred yet)
Dr. Cash
Cr. Unearned Sales Rev
JE to reverse unearned sales revenue (product now transferred)
Dr. Unearned Sales Rev
Cr. Sales Rev
Dr. COGS
Cr. Inventory
What is an incremental cost to a contract?
costs that would have not been incurred if contract had not been obtained. (such as commissions on the sale or legal fees for creating a contract)
Bill-and-Hold only exists if these 4 criteria are met (all must be met):
- substantive reason for the arrangement
- product belongs to the customer now
- product is ready to transfer to customer
- entity cannot use the product or give to another customer
Consignment exists if these 3 criteria are met :
- entity controls the product
- dealer does not have obligation to pay
- entity can require the return of the product
what is a repurchase agreement?
entity sells an asset and also promises to or has the option to repurchase the asset
