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BUSI 1450U (25)
Chapter 1-6

Chapters 1-6 Textbook/Video Quiz Notes.docx

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BUSI 1450U
John Friedlan

Chapter 1revenue recognition Asset mustProvide future benefits it must be probable that the benefit will be enjoyedhelp generate cash flows ex Furniture art inventoryBe controlled by the entity has the exclusive right to the asset Be the result of a transaction or event that has already occurredBe measurableLiability mustPresent obligationseven if you dont have to handle it right now The result of a past transactioneconomic eventRequire some kinds of economic sacrifice to settlethrough cash goods services etcEconomic sacrifice is probable and can be measured reliably Cash Accountingrecords the cash flowing inout of the entity Under cash accounting recording is triggered exclusively by the exchange of cash Revenue is recognized when cash is receivedExpenses are recognized when cash is paid Accrual AccountingMeasures the economic impact of transactions and economic events rather than cash flowsUnder this accounting economic events can be recorded before after or at the same time as the associated cash flowSeparates cash flow from revenuesexpenseAdjusting entriesAre required bc revenuesepenses acan be recongnized at times other than when cash is exchangedEvery adjusting entry involves a balance sheet account and an is accountIs associated with a transactional entry that is recorded before or after the adjusting entryAre required only when fs are preparedNever involve cashRevenueeconomic benefits earned by an entity by providing goodsservices to customerRevenue recognitionthe point in time when revenue is recordedrecognized in the accounting system and reported in the IS 1Critical event approach 100 of the revenue is recognized at this one time applies to the sale of goods Examples of critical events completion of production delivery cash collection completion of warranty or rightofreturn periodmost appropriate time is the earliest point in time when all of the revenue recognition criteria is metcriteria according to IFRS Significant risks and rewards of ownership have been transferred from the seller to the buyerSeller has no involvement or control over the goods soldCollection of payment is reasonably assuredAmount of revenue can be reasonably measuredCosts of earning the revenue can be reasonably measured 2Gradual approachfor services provided over a period of time contracts interestcant use as an alternative to criticalevent approachCriteriaCollection of payment is reasonably assuredThe amount of revenue can be reasonably measuredCosts of earning the revenue can be reasonably measuredThe stage of completion of the transaction can be estimatedPercentage of completion method Revenue for the periodcosts incurred during the periodtotal estimated costs for the projectestimated project revenueIf its expected that a longterm contract will lose money the full amount of the loss must be recognized immediately A loss is not spread over the life of the contractIf the gradual approach criteria arent met
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