Revenue Recognition

Question 1

revenue is recognized when it is probable that economic benefits will flow to the business. 3 conditions:

Answer 1

1. performance (revenue is earned)
2. measurement (amount earned can be measured)
3. collectability (reasonable assurance that client will pay)

Question 2

what is the name of the account that is made for estimating uncollectibility?

Answer 2

allowance for doubtful accounts

Question 3

what are the 4 revenue recognition methods?

Answer 3

1. time of sale/delivery
2. time of contract signing
3. time of production
4. time of collection

Question 4

free on board describes the point when the title of the goods transfers from _____ to _____

Answer 4

buyer to seller

Question 5

what are the two types of income statements?

Answer 5

multi-step and single-step

Question 6

what is the difference between a multi-step and a single-step income statement?

Answer 6

multi-step:

• mandatory to report EPS
• different kinds of operations are segregated

single step:
-all expenses grouped together except interest and income tax

Question 7

what type of business would use time of collection?

Answer 7

magazine sales, installment payments

Question 8

what type of business would use time of production?

Answer 8

• long term construction

- mining in the past

Question 9

what type of business would use time of contract signing?

Answer 9

retail land sales

Question 10

___ ___ is when ownership passes to buyer after goods leave seller’s shipping point

Answer 10

FOB shipping point

Question 11

___ ___ is when goods remain property of the seller until they reach their destination

Answer 11

FOB destination