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Part II: Revenue Recognition - Coggle Diagram
Part II: Revenue Recognition
Criteria of Revenue Recognition
Measurability of asset value
Existence of a transaction
Substantial completion of the earning process
Recognition of Revenue
The revenue can be measured reliably
It is probable that the inflow, other enhancement or saving in outflows of future economic benefits has occurred
The Objective of Accounting
To measure and report the economic activities of a defined entity
Definition of Revenue
Total income earned by selling goods or services that related to the main operation of the company
Criteria Applied to Construction Contracts
Reliability
Revenues and associated costs are only recognised where they can be ‘reliably estimated’ and the stage of contract completion can be reliably determined
Clarity
Costs attributed to the contract can be ‘clearly estimated’
Exception to Sales Basis
Revenue recognised during production
Revenue recognised at the end of production
Revenue recognised when cash is received after the sale is made
Sale of Services
If performance consists of the execution of a single act
If performance consists of the execution of more than one act
If services are performed in > a single act
If there is a significant degree of uncertainty surrounding the collection of service revenue
Sales Basis of Revenue Recognition
A financial transaction occurs
The seller receives a measurable asset
The earning process is substantially complete
Other Complications of Sales
FOB (Free on Board) shipping point
FOB destination
Types of Cash Inflow
Physical Flow
Producing and selling the output
Monetary Flow
Value in the firm increasing