Timing Issues (Matching Revenue & Expenses, Correcting and adjusting accounts)

Question 1

What are Assets?

Answer 1

Probable future economic benefits that are obtained or controlled by a particular entity as a result of past events or transactions

Question 2

What are liabilities?

Answer 2

Probable future sacrifices of economic benefits that an entity faces for obligations to provide services or transfer assets due to past events or transactions

Question 3

What requirements should be met before recognizing revenue? (U.S. GAAP)?

Answer 3

i. Persuasive evidence of an arrangements exits
ii. Delivery has occurred or services have been rendered
iii. The price is fixed and determinable
iv. Collection is reasonably assured

Question 4

What are the Criteria Applications for sale (exchange) to take place?

Answer 4

i. Delivery of goods or setting aside goods ordered
ii. Transfer or legal title
iii. Revenue from the use of the entity’s assets is recognized when the assets are used
iv. Revenue from performance of services is recognized in the period of services have been rendered

Question 5

What are the Criteria Applications for Sale of Goods Revenue Recognition (IFRS)?

Answer 5

i) Revenue and costs can be measured reliably
ii) It is probable economic benefits from the transaction will flow to the entity
iii) The risks and rewards of ownership have been transferred
iv) No managerial involvement to the degree of ownership or control over goods sold

Question 6

What are the Criteria Applications for Rendering of Services Revenue Recognition (IFRS)?

Answer 6

i) Revenue and costs can be measure reliably
ii) It is probable economic benefits from the transaction will flow to the entity
iii) The stage of completion can be measured reliably

Question 7

What are the Criteria Applications for Revenue from Interest, Royalties, and Dividends (IFRS)?

Answer 7

i) Revenue can be measured reliably

ii) It is probable economic benefits from the transaction will flow to the entity

Question 8

What are the Criteria Applications for Construction Contracts Revenue Recognition?

Answer 8

i) Revenue and costs can be measured reliably
ii) It is probable economic benefits from the transaction will flow to the entity
iii) The contract costs to complete and the stage of contract completion can be measured at the end of the period reliably

Question 9

What is Multiple Element Arrangement?

Answer 9

When a sales contract includes multiple products or services, the FV of the contract must be allocated to the separate elements and revenue is recognized for each element based on its revenue recognition criteria

Question 10

What are Expenses?

Answer 10

1) Reduction of assets or increases of liabilities during a period of time
2) Should be recognized using the matching principle

Question 11

What is Realization?

Answer 11

• An entity obtains cash or the right to receive cash

- Has converted non-cash resources into cash

Question 12

What is Recognition?

Answer 12

Actual recording of transactions and events on the financial statement

Question 13

What is matching Principle?

Answer 13

Expenses must be recognized in the same period in which the related revenue is recognized

Question 14

What is Accrual Accounting

Answer 14

The process of employing the revenue recognition rule and the matching principle of revenues and expenses

Question 15

What kind of impact deferrals have?

Answer 15

No Current I/S impact or Balance Sheet impact

Question 16

What are Accrued Assets

Answer 16

Revenue recognized or earned through the passage of time but not yet paid to the entity

Question 17

What Are accrued liabilities

Answer 17

Expenses recognized or incurred through the passage of time but not yet paid by the entity

Question 18

What Are Estimated Liabilities?

Answer 18

Probable future charges that result from a prior act

Question 19

What are examples of expired Costs?

Answer 19

a. Insurance Expenses
b. COGS
c. Period costs

Question 20

What is the appropriate treatment of expired costs?

Answer 20

Expense on Income Statement

Question 21

What are prepaid Expenses?

Answer 21

• Relate to expenses with residual value

- May occur where there exists a future right to services

Question 22

What are Deferred Charges

Answer 22

• No charges to tangible assets

- Intangible assets and noncurrent prepaid items