Create
Learn
Share

Reading 24

rename
msk2222's version from 2018-02-03 21:07

Summary

This page helps you learn capitals of countries.

COMPONENTS AND FORMAT OF THE INCOME STATEMENT

Question Answer
Revenueamounts charged (and expected to be received) for the delivery of goods or services in the ordinary activities of a business.
net revenuerevenue number is reported after adjustments (e.g., for cash or volume discounts, or for estimated returns)
Expensesoutflows, depletions of assets, and incurrences of liabilities in the course of the activities of a business.
net income (profit or loss)a) income minus expenses, or equivalently b) revenue plus other income plus gains minus expenses, or equivalently c) revenue plus other income plus gains minus expenses in the ordinary activities of the business minus other expenses, and minus losses. The last definition can be rearranged as follows: net income equals (i) revenue minus expenses in the ordinary activities of the business, plus (ii) other income minus other expenses, plus (iii) gains minus losses.
grouping by nature of the expenseGrouping together expenses such as depreciation on manufacturing equipment and depreciation on administrative facilities into a single line item called “depreciation” is an example of a
grouping by functiongrouping expenses into a category such as cost of goods sold, which may include labour and material costs, depreciation, some salaries (e.g., salespeople’s), and other direct sales related expenses.
gross profit or gross margin revenue less cost of sales
memorize

REVENUE RECOGNITION

Question Answer
Incomeincreases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants
unearned revenuethe cash is initially received, and revenue would be recognized as being earned over time as products and services are delivered
When to recognize revenuethe entity has transferred to the buyer the significant risks and rewards of ownership of the goods; the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
US GAAP guideline lists four criteria to determine when revenue is realized or realizable and earnedThere is evidence of an arrangement between buyer and seller. For instance, this would disallow the practice of recognizing revenue in a period by delivering the product just before the end of an accounting period and then completing a sales contract after the period end. The product has been delivered, or the service has been rendered. For instance, this would preclude revenue recognition when the product has been shipped but the risks and rewards of ownership have not actually passed to the buyer. The price is determined, or determinable. For instance, this would preclude a company from recognizing revenue that is based on some contingency. The seller is reasonably sure of collecting money. For instance, this would preclude a company from recognizing revenue when the customer is unlikely to pay.
memorize

REVENUE RECOGNITION in special cases

Question Answer
Before Goods Are Fully Delivered or Services Completely RenderedFor example, with long-term contracts where the outcome can be reliably measured, the percentage-of-completion method is used
At the Time Goods Are Delivered or Services RenderedRecognize revenues using normal revenue recognition criteria.
After Goods Are Delivered or Services Renderedwith real estate sales where there is doubt about the buyer’s ability to complete payments, the installment method and cost recovery method are appropriate
memorize
long-term contract is one that spans a number of accounting periods
percentage-of-completion method, in each accounting period, the company estimates what percentage of the contract is complete and then reports that percentage of the total contract revenue in its income statement.
completed contract method, the company does not report any income until the contract is substantially finished (the remaining costs and potential risks are insignificant in amount), although provision should be made for expected losses. Billings and costs are accumulated on the balance sheet rather than flowing through the income statement.
This principle applies even to installment sales—sales in which proceeds are to be paid in installments over an extended period.
Two of the methods may be appropriate in these limited circumstances and relate to the amount of profit to be recognized each year from the transaction: the installment method and the cost recovery method.
Question Answer
barter transactionexchanges advertising space for computer equipment from Company B but no cash changes hands, can Company A and B both report revenue
Gross versus Net Reportingthe company is the primary obligor under the contract, bears inventory risk and credit risk, can choose its supplier, and has reasonable latitude to establish price. If these criteria are not met, the company should report revenues net
memorize

EXPENSE RECOGNITION

Question Answer
matching principlematching of costs with revenues.
Period costsexpenditures that less directly match revenues, are reflected in the period when a company makes the expenditure or incurs the liability to pay.
memorize

 

Replace all words in this box with the content you want to create (including this sentence). Then add, delete, and edit the text as desired.