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- Inflows from entity's ongoing central operations
- Revenues are a company's primary source of income
Revenue Recognition (according to the FASB)
Earned - company has substantially accomplished what it must do to be entitled to benefits represented by the revenues.
Realized or realizable - Cash or asset readily convertable to a known amt. of cash, has been rec'd
Revenue Recognition (according to the SEC)
- SAB 101: Recognize revenue when all of the following conditions are met:
- 1)Persuasive evidence of an arrangement exists - elements are finalzied in accordance w/company's normal and customary P&P
- 2)Delivery has occurred or services have been rendered - Customer assumes the risks and rewards of ownership - even after delivery, rev. shouldn't be recognized if customer acceptance is uncertain
- 3)Price is fixed or determinable - it is fixed or determinable if it isn't subject to adjustment or refund - if a fee is not fixed or determinable, revenue is recognized as payments from customers become due
- 4)Collectibility is reasonably assured - Customer must be able & expected to pay the sales price at the time of sale
- Ordinarily, revenue should be recognized at the time a transaction is completed w/a provision made for possible uncolectible amts.
- If collection is not reasonable assured, revenue should not be recognized - revenue is recognized as payment is rec'd using either the installment (recognize profit proportional to cash rec'd) or cost recovery method (recognize profit only after cost recovered)
- arrangements where the seller delivers good but retain title to the goods until they are sold
- The consignee acts as an agent for the consignor in selling the merchandise
- Products delivered under a consignment arrangement do not qualify for revenue recognition