ACTG 2010 Lecture Notes - Lecture 4: Earnings Management, Income Statement, Cash Flow
15 Nov 2016
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Document Summary
When revenue and the related expenses appear on the income statement. Managers have to choose from alternative accounting methods that are allowed and acceptable. However various factors influencing this decision accounting standards such as ifrs and aspe allow managers to choose and still satisfy their own interests. Two approaches for recognizing revenue: critical event approach, gradual approach. Each approach applies to different types of transactions - they are not substitutes for each other. Amount of revenue can be reasonably measured. Determine overall contract price expected value method or most likely amount. Allocate contract price to separate performance obligations based stand-alone value. Determine when performance obligation satisfied and revenue recognized control transferred. When a critical event occurs it triggers recognition of revenue and matching of expenses. Critical events include: delivery of goods or services, completion of production, cash collection, completion of warranty period or right-of-return period. Revenue is earned with the passage of time and is recognized accordingly.
