Revenue Recognition Flashcards
What are costs to capitalized to fulfill a contract?
Raw materials
Direct Labor
Overhead
What are the criteria for recognizing the revenue for the percentage of completion method (over time)
- Reasonable estimate profitability
2. Provide a reliable measure of progress toward completion
Accounting for Percentage of Completion
How to recognize gross profit
Step 1. Compute gross profit of completed contract:
Contract price - Estimated total Cost = Gross profit
Step 2. Compute percentage of completion
Total cost to date/Total estimated cost of contract = % of completion
Step: 3. Compute gross profit earned (profit to date)
Step 1 x step 2 = PTD
Step 4. Compute gross profit earned for current year:
(PTD at current FYE) - (PTD at beginning of Period) = Current year to date GP
Note: An estimated loss on the total contract is recognized immediately in the year it is discovered.
Remember to reverse previous profit.
cost incurred = work done = % of job earned
Total expected cost = total expected work
What are the indicators that an entity is a principal?
- The principal is primarily responsible for fulfilling the contract
- The entity has inventory risk and
- The entity has the discretion in establishing the selling price for the goods or services
When will an entity account for a contract as a financing arrangement?
When the repurchase price is equal to or more than the original price and the expected market value.
When will an entity account for a contract as a lease?
When the repurchase price is less than the original price.
When is a current asset reported under the percentage of completion method?
When accumulated costs plus estimated earnings on the contract exceed progress billings.
when is a current liability reported under the percentage of completion method?
A liability is reported when progress billings exceed costs and estimated earnings.