tailieunhanh - Income Measurement and Profitability Analysis 5 Copyright © 2007 by The McGraw-Hill Companies,

Discuss the general objective of the timing of revenue recognition, list the two general criteria that must be satisfied before revenue can be recognized, and explain why these criteria usually are satisfied at a specific point in time. | Income Measurement and Profitability Analysis 5 Copyright 2007 by The McGraw-Hill Companies Inc. All rights reserved. 5-2 Learning Objectives Discuss the general objective of the timing of revenue recognition list the two general criteria that must be satisfied before revenue can be recognized and explain why these criteria usually are satisfied at a specific point in time. 5-3 Revenue Recognition Revenue should be recognized in the period or periods that the revenuegenerating activities of the company are performed. 1 5-4 Realization Principle Record revenue when The earnings process is complete or virtually complete. AND There is reasonable certainty as to the collectibility of the asset to be received usually cash . 5-5 SEC Staff Accounting Bulletin No. 101 The SEC issued Staff Accounting Bulletin No. 101 to crackdown on earnings management. The bulletin provides additional guidance to determine if the realization principle is satisfied 1. Persuasive evidence of an arrangement exists. 2. Delivery has occurred or services have been performed. 3. The seller s price to the buyer is fixed or determinable. 4. Collectibility is reasonably assured. Completion of the Earnings Process Within 5-6 a Single Reporting Period Recognize Revenue When the product or service has been delivered to the customer and cash has been received or a receivable has been generated that has reasonable assurance of collectibility. 2 5-7 Learning Objectives Describe the installment sales and cost recovery methods of recognizing revenues for certain installment sales and explain the unusual conditions under which these methods might be used. 5-8 Significant Uncertainty of Collectibility When uncertainties about collectibility exist revenue recognition is delayed. 1. Installment Sales Method 2. Cost Recovery Method 5-9 Installment Sales Method The installment sales method recognizes the gross profit by applying the gross profit percentage on the sale to the amount of cash actually collected.