Financial Statements and Rev Rec Flashcards
Balance Sheet
Reports the effect of transactions at one point in time.
Consists of Assets, Liabilities, and Stockholder’s Equity. Items are broken down between current and non-current.
Current Assets
assets that will be used or converted to cash within one year or the operating cycle, whichever is longer.
Current Liabilities
liabilities that will be settled within one year or the operating cycle, whichever is longer.
Cash
most liquid asset of a business, presented first on the balance sheet
Cash Equivalent
security that is easily converted into cash
must have an original maturity of 90 days or less
An asset that has longer than 90 days until maturity will not be reclassified once it hits 90 days or less
Post Dated Check/NSF
this is a receivable
Overdraft protection
If it’s in the same bank net them and show as either cash or a liability
In different banks do not net them, show as an asset or liability
Bank to Checkbook Reconciliation
Add DIT and subtract OS Checks +/- bank errors
Checkbook to bank Reconciliation
Add amounts collected by the bank subtract unrecorded bank charges +/- errors
ON-TIDe-N-OC
O-Operating Income N-Non-Operating (other income and expense) T-Provision for Income Taxes I-Income from Continuing Operations De-Discontinued Component Unit N-Net Incomr O-OCI-DENT C-Comprehensive Income
Rev Rec Overview
Rev is to be recognized upon the transfer of promised goods/services
The amount of revenue recognized represents the consideration the entity expects to receive in exchange for the goods/services
Revenue Recognition 5 Steps
- Identify Contracts with Customers
- Identify all Performance Obligations
- Determine the total consideration of the contract
- Allocate consideration to each Performance Obligation
- Recognize Revenue WHEN or AS it happens
Identify Contracts with Customers
A contract is an arrangement between two or more parties that creates legally enforceable rights and obligations. If it can be terminated without penalty it is not a contract.
4 Terms of a Contract
- Both parties must approve the provisions
- Terms don’t need to be explicit but both parties must know what they are agreeing to
- Has Commercial Substance
- Collection is probable
Contract Modification
Treated as the cancellation of the original contract accompanied by a new contract
Performance Obligation
An enforceable promise to transfer goods or services to a customer identified at the inception of the contact
Combine small obligations until a distinct performance obligation is created
Distinct Performance Obligation Criteria
- Customer must be able to benefit from the good/service on its own
- The promise to provide goods/services is separate from other promises in the contract
Assurance Type Warranty
protects the customer from obtaining a product that is not acceptable or working. These are a contingent liability to the seller. These are probable and estimable and therefore can be accrued in the period incurred which is generally the period of sale.
Service Type Warrnaty
Provides customer with parts and labor repairs.
It is a separate Distinct performance obligation.
- Determine the Transaction Price
the amount of consideration the seller expects to be entitled to for providing the goods and services less amounts collected on the behalf of others (sales tax)
Transaction Price when seller is a Principal
Entire amount is recognized and any amounts collected for others are expenses or costs of sales
Transaction price when seller is an Agent
only the net amount (revenue after paying the principal) is retained and recognized
Principal
Someone who controls goods or services before the transfer and may satisfy the performance obligation directly or have someone else do it
Variable Consideration
an expectation that the seller will accept less than the contract amount (discount rebate refund credit etc)
Non-cash consideration
measured at FV
- Allocate transaction price to performance obligations
price is allocated to performance obligations in proportion to their stand alone selling price
- Allocate Revenue as Performance Obligations are satisfied
while or as
when the customer has control of the goods
control= ability to use them,prevent others from benefiting, obtain benefits in the form of cash flows
Input Method
how much materials and time the customer has given
Output Method
time elapses (10 out of 10000) how much of the goods and services have been transferred to the customer
