Question
Q:
Judgment case 5-2
Revenue earned by a business enterprise is recognized for accounting purposes at different times, according to the circumstances. In some situations revenue is recognized approximately as it is earned in the economic sense. In other situations revenue is recognized at point of delivery.
Required:
1. 1. Explain and justify why revenue often is recognized as earned at point of delivery.
2. Explain in what situations it would be useful to recognize revenue as the productive activity takes place.
3. At what times, other than those included in (1) and (2) above, may it be appropriate to recognize revenue?
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Revenue Recognition
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- Posted on Feb. 03, 2012 at 03:12:06AM
A:
Preview: ... ved — there is some merit in the position that it is not earned revenue until cash or near-cash assets have been received.
The seller ’ s costs have been incurred with the result that net income can be measured.
2. Explain in what situations it would be useful to recognize revenue as the productive activity takes place.
For service-type transactions, revenue is generally recognized on the basis of the seller ’s performance of the transaction with performance being the execution of a defined act or acts or the passage of time. Service-type firms may select from recommended methods to recognize revenue: (1) specific performance method, (2) completed performance method, (3) proportional performance method, and (4) collection method.
In some non-service firms, revenue can be recognize ...
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