BU127 Lecture Notes - Lecture 9: Accounts Receivable, Effective Interest Rate
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BU127 Full Course Notes
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The revenue principle requires that revenues be recorded when earned: goods or services have been transferred/delivered, the entity retains neither continuing managerial involvement nor effective control o. The amount of revenue can be measured reliably: it is probable (>50%) that economic benefits will flow to the entity, the costs can be reliably measured. Sellers of goods typically recognize sales revenue when title and risks of ownership pass to the buyer: fob (free on board) shipping point o fob destination points. Service companies typically recognize sales revenue when they have provided services to the buyer. The appropriate amount of revenue to recognize is the cash-equivalent sales price. Companies accept credit cards to: o increase sales: avoid providing credit directly to consumers, avoid losses due to bad cheques, avoid losses due to fraudulent credit card sales o receive payment quicker. When credit card sales are made, the company must pay the credit card company a fee for the service it provides.
