F2 - M1 - Revenue Recognition Introduction Flashcards
How may revenue from a long-term construction contract be recognized?
Over time or at a point in time?
What are the rules for accounting for construction revenue recognized over time?
What is a bill-and-hold arrangement?
What is deferred revenue?
Deferred revenue is a liability until the service has been performed. A deferred revenue on the books of one company is a prepaid expense on the books of another company. Deferred revenues are revenues that have been received in cash but not yet earned. Deferred revenues represent billing for services that have not yet been performed.
What is the Five-Step Approach of Revenue Recognition?
Step 1: Identify the Contract(s) with the Customer
Step 2: Identify the Separate Performance Obligations in the Contract
Step 3: Determine the Transaction Price
Step 4: Allocate the Transaction Price to the Performance Obligations in the Contract
Step 5: Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation
Which items are used to calculate the income recognized over a period of time?
- Income previously recognized
- Estimated cost of contract
- % of completion
When does an asset or liability exist for long-term construction contracts?
The excess of accumulated costs plus estimated earnings over related billings will represent a current asset. A liability only exist when progress billings exceed costs and estimated earnings.
Estimated Profit = Contract Amount - (Actual Costs Incurred and Paid + Estimated Costs to Complete)
Percent Complete = Act. Costs / (Act. Costs + Est. Costs to Complete)
Gross Profit Earned to Date = Estimated Profit * Percent Complete
When should the loss for a long-term construction project be recognized?
Immediately, despite whether revenue is recognized over time or at a point in time.
When should a seller book a transaction as a financing arrangement?
When the repurchase price is equal to or greater than the original sale price and the expected market value?
Are goods received on consignment, by a Consignee, recorded as inventory?Es
No
