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  1. What is an asset?
    probable future economic benefits that are obtained or controlled by a particular entity as a result of past events/transactions
  2. What is a Liability?
    probably future sacrifices of economic benefits that an entity faces for obligations to provide services or transfer assets due to past events/transactions
  3. What are Revenues?
    increase of assets or reduction of liabilities (or both) during period of time; stem from rendering of services, delivering of goods, or any other ongoing or major operations of the entity
  4. Under US GAAP, when is Revenue recognized?
    • when realized/realizable and when it is earned
    • 4 criterias in order to be recognized:
    • 1. persuassive evidence (signed contract)
    • 2. delivery has occured/services rendered (risk and rewards transfered)
    • 3. price is fixed and determinable (no price contingencies)
    • 4. collection is reasonably assured (std. collection terms)
  5. What 4 items must occur for a sale to take place?
    • 1. deliver of goods or setting aside goods ordered and/or
    • 2. transfer of legal tittle
    • 3. Revenue stemming from use of something recognized when item is used
    • 4. Revenue for services recognized in period of performance based on abiity to bill entity
  6. Under IFRS, what are the Revenue Recognition rules for sale of goods?
    • 1. Revenue and cost can be measured reliably
    • 2. Probably economic benefits
    • 3. Transferred to the buyer all risk and rewards
    • 4. Entity does not retain managerial involvement
  7. Under IFRS, What are the Revenue Recognition rules for rendering of services?
    • It is recognized using percentage of completion
    • Criterias:
    • 1. Revenue and costs can be measure reliably (same)
    • 2. Has a probably economic benefit (same)
    • 3. the stage of completion at the end can be measured reliably
  8. Under IFRS, when do you recognize revenue from Interest, Royalties, and Dividends?
    • only 1 & 2
    • 1. Revenue and costs can be measure reliably (same)
    • 2. Has a probably economic benefit (same)
  9. Under IFRS, when do you recgonize Construction Contract Revenue?
    • Use percentage of completion
    • Criterias: same as 1&2
    • 1. Revenue and costs can be measure reliably (same)
    • 2. Has a probably economic benefit (same)
    • 3. Complete the contract/Stage of Completion/End of reporting period can be measured realiably
  10. Under US GAAP, How do you handle multiple element arranagements?
    • If doing lots of different stuff for the customer, FV of contract must be allocated to each piece and handled almost seperately.
    • (develop software, training, post-customer service)
  11. What are some exception to the Revenue Recognition rules?
    • 1. Deferred credits - Liability
    • 2. Installment Sales
    • 3. Cost recovery method
    • 4. Involuntary conversions
    • 5. Non-monetary exchanges
    • 6. Net method of accounting for trade (sales) discounts
    • 7. Percentage of Completion contract accounting
  12. What are Expenses?
    • reductions of Assets or increase in Liabilities
    • should be recognized according to matching principle
  13. What is Realization vs Recognition?
    • Realization = real world
    • (occurs when the entity obtains cash or converted non-cash to cash)
    • Recognition = record
    • (accrual recording of transactions and events in F/S)
  14. What is matching Principle?
    Expense recognized in the same period in which the related revenue is recognized
  15. What are accrued assets (or revenues)?
    Revenue recognized/earned through passage of time (or other criteria) but not yet paid to entity (ex. Interest Receivable)

    • Accounts Receivable..........................xx
    • ____Accrued Revenue...........................xx
  16. What are accrued Liabilities (or expenses)?
    expenses recognized/incurred through passage of time, but not yet paid, (accrued wages, interest, etc.)

    • Accrued Expenses..................xx
    • ____Accrued Liabilities..............xx
  17. What are estimated Liabilities?
    recognition of probable future charges that result from prior act (ex. estimated liabilities for warranties etc.)

    • Accrued Expense....................xx
    • ____Accrued Liability.................xx
  18. What are expired costs?
    • Costs that expire during the period and have no future benefits (expense on income statement)
    • ex. Insurance expense, CGS, period costs
  19. What are pre-paid expense?
    Current assets; expenditures with a residual value

    • Prepaid expense.......................xx
    • ___Cash.......................................xx
  20. What are deffered charges?
    results from expenditures or accruals that cannot be charged to a tangible asset, but they do pertain to future operations (Bond Issue costs) -- must wait until it get expired

    • Deferred Charge...................xx
    • __Asset/Cash............................xx
  21. What are deferred credits and how are they accounted for?
    • 1. Deferred credits: future income (rental income/gift certificates/magazine subs)
    • 2. have not yet been earned by the passage of time/criteria
    • 3. located in liability section of the B/S (earn it or return it)

    • Cash............................................xx
    • ___Unearned Revenue/Def Rev.....xx
  22. When is Royalty Revenue Recognized?
    • when it is earned (paid in advance) -- B/S
    • Cash............................xx
    • __Unearend Royalty.......xx

    • when later earned -- I/S
    • Unearned Royalty........xx
    • __Unearned Royalty........xx
  23. What are the requirements to recognize revenue when right of return exists?
    • must meet all of these then you can recognized at time of sale if not deferred:
    • 1. Sales price is substantially fixed
    • 2. buyers assume all risk of loss
    • 3. buyer paid some form of consideration
    • 4. product sold is complete
    • 5. amount of future returns can be reasonably estimated
  24. What is a franchise and what types of fees are involved?
    • franchisee receives right to operate one or more units of the franchisor's business:
    • 1. initial franchise fees (revenue when "substantially performed")
    • 2. continuin franchise fees (revenue when earned)
  25. What is unearned revenue from the franchisor's perspective?
    is recognized as revenue once "substantially performance" on future services has occured.

    "substantially performance": intial franchise fee (not yet earned) and prepaid continuing franchise fee
  26. For a Franchisor, what is substantial performance?
    • must have the condition of the sale "substantially performed":
    • Conditions:
    • 1. Franchisor has no obligation to refund any payment
    • 2. Intial services required of the frachisor hav ebeen performed
    • 3. All others of the condition of the sale has been met
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