F2-NOTES Flashcards
How should freight out be accounted for?
Freight-out is a selling expense that should be accounted for as a period cost at the time incurred.
FREIGHT IN IS WHAT TYPE OF COST
INVENTORY COST
WHAT IS COST RECOVERY OF RECOGNIZING REVENUE?
IT WILL ONLY RECOGNIZE PROFIT AFTER ALL COSTS HAVE BEEN RECOVERED.
GROSS PROFIT FORMULA
GROSS PROFIT=SALES-COST OF SALES
GROSS PROFIT RATE FORMULA
GROSS PROFIT RATE = GROSS PROFIT/SALES
GROSS PROFIT ON INCOME STATEMENT FORMULA
GROSS PROFIT ON IS=CASH COLLECTIONS x GROSS PROFIT RATE
DEFERRED GROSS PROFIT FORMULA
DEFERRED GROSS PROFIT = GROSS PROFIT RATE x ENDING INSTALLMENT RECEIVABLE
What are the four criteria for revenue to be recognized in US GAAP?
- Persuasive evidence of an arrangement (signed contract)
- Delivery has occurred or services have been rendered (risk and rewards transfer)
- The prie is fixed and determinable (no price contingencies)
- Collection is reasonably assured (standard collection terms)
When is the revenue from the sales of products or the dispoal of other assets recognized?
On the date of sale
Under IFRS-
What conditions have to be met before the revenue from sale of goods is recognized?
- Revnue and costs incurred for the transaction can be measured reliably
- it is probable that economic benefits from the transaction will flow to the entity
- The entity has transferred to the buyer the significant risk and rewards of ownership
- The entity does not retain managerial involvement to the degree associated with ownership or control over the goods sold.
Under IFRS-
how is the revenue from rendering services recognized?
when the outcome is?
Using the precentage of completion method
of the transaction can be estimated reliably
Under IFRS-
The outcome of the transaction can be estimated reliably when all of the following conditions have been met:
- Revenue and costs incurred for the transaction can be measured reliably
- It is probably that economic benefit from the transaction will flow to the entity
- The stage of completion of the transaction at the end of the reporting period can be measured reliably
Under IFRS
Revenue from interest, royalties and dividends that arise from the use by others of the entity’s assets is recognized when all of the following conditions have been met:
- Revenue can be measured reliably
- It is probable economic benefits from the transaction will flow to the entity
Under IFRS-
Construction contracts can be estimated reliably when…
- The contract revenue and contracts costs attributable to the transaction can be measured reliably
- It is probable that economic benefits from the transaction will flow to the entity
- Both the contract costs to complete the contract and the stage of contract completion at the end of the reporting period can be measured reliably
Multiple Element Arrangements–
Notes
When a sales contract includes multiple products or services, the fair value of the contract must be allocated to the separate contract elements.
Revenue is then recognized separately for each element based on the revenue recognition criteria appropriate for each element.
What are deferred credits?
When cash is received before it is earned, a deferred credit (unearned revenue or deferred revenue) is reported. It is recognized as revenue when it is earned.
“Liability= Earn it or Return It”
What are expenses?
Reductions of assets or increases of liabilities (and possibly both) during a period of time.
They stem from rendering services, delivering of goods, or any other activites that may constitute the major ongoing or central operations of an entity.
Expenses should be recognized according to the matching principle.
What is realization?
Occurs when the entity obtains cash or the right to receive cash (i.e. from the sale of assets) or has converted a noncash resource into cash
“real world”
What is recognition?
Recognition is the actual recording of transactions and events in the FS
“record”
What is the matching principle?
One of the most important principles in financial accounting is the matching principle, which indicates that expense must be recognized (when it is practicable to do so). Matching revenues and costs is the simultaneous or combined recognition of the revenues and expenses that results directly and jointly from the same transactions or events.
What is accrual accounting?
Accrual Accounting is required by GAAP and is the process of employing the revenue recognition rule and the matching principle to the recotnition of revenues and expenses
“I/S impact/ No current cash impact”
Deferral-
Notes
Deferral of revenues and expenses will occur when cash is received or expended but is not recognizable for F/S purposes. Deferral typically results in the recognition of a liability or a prepaid expense.
What does the recognition of an accrued asset or accrued revenues?
Represents revenue recognized or earned through the passage of time (or other criteria) but not yet paid to the entity.
What does accrued liabilites or accrued expenses represent?
Expenses recognized or incurred through the passage of time (or other criteria) but not yet paid by the entity (e.g. accrued interest payable, accrued wages, etc.).