Revenue Recognition Flashcards
Percentage of completion ratio
Total costs to date / total estimated cost of contract
At what point can you recognize revenue on a bill-and-hold arrangement?
- When the product is separately identified and cannot be directed to another customer (for example, when it is built to the customer’s specifications)
- The product is completed and ready to transfer to the customer on that date
How should collections received for service contracts be recorded?
Unearned service revenue
Services that can be combined into a single performance obligation
Services that are similar in nature and can be provided to the buyer in a similar manner
Services that should be split into separate obligations
When a customer can benefit from each service independently, in conjunction with own available resources, and they are separately identifiable
What is deferred revenue
It is a liability used until the service has been performed
When is a contract modification appropriate?
When there is a change in the price or scope of the contract.
When is a new contract appropriate instead of just a modification?
If the scope increases for the addition of distinct goods or services and the change in contract price represents stand-alone prices
What are examples of the input and output methods in a performance obligation?
Output: milestones achieved
Input: Resource consumption, labor hours expended, costs incurred relative to total expected costs
When should revenue be recognized over time?
The buyer is benefitting as the seller performs over the terms of the contract
Revenue should be recognize at a point in time when
Buyer has the legal title to an asset or when physical possession transfers to the buyer (indicates control)
When will the 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
