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ACC305 Wk 2 DQ2 Revenue Recognition - Case 5-2


ACC305 Wk 2 DQ2 Revenue Recognition - Case 5-2 fin571

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ACC305 Wk 2 DQ2 Revenue Recognition - Case 5-2
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This 0 page Study Guide was uploaded by an elite notetaker on Monday November 9, 2015. The Study Guide belongs to fin571 at Kaplan University taught by in Fall 2015. Since its upload, it has received 48 views.


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Date Created: 11/09/15
Judgment Case 52 page 291 Revenue earned by a business enterprise is recognized for accounting purposes at different times according to the circumstances In some situations revenue is recognized approximately as it is earned in the economic sense In other situations revenue is recognized at point of delivery Required 1 Explain and justify why revenue often is recognized as earned at point of delivery 2 Explain in what situations it would be useful to recognize revenue as the productive activity takes place 3 At what times other than those included in 1 and 2 above may it be appropriate to recognize revenue Judgment Case 52 Requirement 1 While revenue often is earned during a period of time revenue usually is recognized at a point in time when both revenue recognition criteria are satisfied These criteria usually are satisfied at the point of delivery The revenue has been earned and there is reasonable certainty as to the collectibility of the asset cash to be received Usually significant uncertainties exist at the time products are produced At point of delivery the product has been sold and the price and buyer are known The only remaining uncertainty involves the ultimate cash collection which can usually be accounted for by estimating and recording allowances for possible return of the product and for uncollectibility of the cash Requirement 2 It would be useful to recognize revenue as the productive activity takes place when the earnings process occurs over long periods of time A good example is long term projects in the construction industry Requirement 3 Some revenue producing activities call for revenue recognition after the product has been delivered These situations involve significant uncertainty as to the collectibility of the cash to be received caused either by the possibility of the product being returned or with credit sales the possibility of bad debts Usually these remaining uncertainties can be accounted for by estimating and recording allowances for anticipated returns and bad debts thus allowing revenue and related costs to be recognized at point of delivery But occasionally an abnormal degree of uncertainty causes point of delivery revenue recognition not to be appropriate Revenue recognition after delivery sometimes is appropriate for installment sales and when a right of return eXists


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