F1-M3 - Revenue Recognition: Part 1 Flashcards
What is the mnemonic for the five step approach to revenue recognition
I STAR
What are the five Steps approach to revenue recognition
ISTAR - I( Identify the contract), S (Separate performance obligations), T (Transaction Price), A (Allocate the price to separate obligations), R - Recognize revenue when entity satisfies performance obligation.
_______ are agreements between parties that create enforceable rights or obligations. In order for revenue to be recognized,
Contracts
a contract must: be approved by ______ , contain _______ for each party and payment terms, have ______ and involve probable likelihood that the entity will collect substantially all consideration owed.
all parties, identifiable rights, commercial substance
_______ is a promise to transfer either a good or a service to a customer.
Performance Obligation
To be distinct, the promise must be ______ from other goods/services within the contract and the benefit must be available to the _______ or when combined with their own resources.
1) separately identifiable, 2) customer independently
______ is the amount of consideration that an entity is entitled to receive in exchange for transferring goods and/or services to a customer
Transaction Price
What items should be factored into the transactions price for a contract (4)
1) variable consideration, 2) significant financing, 3) noncash considerations, 4) consideration payable to the customer should be factored into the transaction price.
If a contract contains more than one performance obligation, the __________ will need to be allocated to each separate obligation based on the amount of the expected, stand-alone consideration applicable to each unique obligation.
overall transaction price
for Allocation of the price; _____, _________, and __________ should all be factored into the allocation process.
Discounts, variable consideration, and transaction price changes
______ is recognized when the performance obligation is satisfied through transferring the good/service to the customer (who obtains control).
Revenue
What are the two ways satisfaction can occur: (2)
Over time and a point in time.
A _______ is booked when the entity has a right to consideration in exchange for goods/services transferred to the customer prior to actual payment.
contract asset
A ________ is booked when an entity has the obligation to transfer goods/services when the customer has already paid prior to performance.
contract liability
Criteria must be met in order to recognize revenue: (5)
1) approved contract and committed to perform obligation, 2) The rights are identified, 3) payments terms can be identified, 4) Contract has commercial substance - cash flows are expected to change as a result on the contract 5) Probable for collection of consideration under contract
(JE) What is the journal entry if the consideration is paid but obligation has not been fulfilled
DR - Cash, CR - Unearned Revenue
(JE) What is the journal entry to record the fulfillment of the obligation after you have received cash in previous period.
DR - Unearned Revenue - CR- Revenue
When two contracts are entered by the same customer or with related parties of the customer or near the same time. The contract should _________
be combined as a single contract
When a contract modification occurs it is either treated as (2)
A new contract or part of an existing contact
When a contract modification occurs and the scope increases to the addition of distinct good and services and the price increases it should be treated as __________
A new contract
When a contract modification occurs as a part of an existing contract with an adjustment to _______ to reflect the change in the transaction price
Revenue
If there is more than one performance obligation within a contract, the transaction price should be allocated to each separate performance obligation based on the __________
The consideration that would be expected for satisfying each unique obligation
What are the criteria to recognize revenue over a period of time
1) creates or enhances an asset the customer controls 2) receives and consumers the benefit of the entity’s performance as the entity performs it (subscription) 3) the entity performance does not create an asset with alternative use and has enforceable goths to receive payments.
If revenue is not recognized over a period of time, how it it recognized
A point of time
(JE) To create a contract Asset
Dr Contract Asset CR - Revenue
When a contract requires payment on a date before payment is made
Dr Recevable, Contract Liability (unearned revenue)
What does FASB ASC 606 - Revenues from Contractors with Customers exclude (4)
1) Insurance contracts, 2) lease contracts, 3) Financial Instruments, 4) Contracts with non-customers
