General Revenue Recogniztion

Question 1

What are the 3 criteria that must be met to recognize revenue?

Answer 1

1. ) Goods and services have been provided to customers (Revenue is earned)
2. ) Company is reasonably assured of collecting receivable (Revenue is realizable)
3. ) Company can determine the expenses incurred in providing the goods and services. This isn’t a constraint in most cases

Question 2

In what two situations can the Installment Sales basis be used for Revenue Recognition?

Answer 2

1. ) Collectability questionable

2. ) Extended time period

Question 3

What is the Gross Profit Formula?

Answer 3

(sales-COGS)/sales

This is used in applying the installment method of Revenue Recognition

Question 4

How is the cash received in installment sales divided between COGS and Revenue?

Answer 4

(Cash received in period) x GP % = Recognized gross profit

Any additional cash is considered a return of cost

Question 5

Does Cash collection matter in revenue recognition?

Answer 5

No, it does not matter