CHAPTER 7REVENUE RECOGNITION.ppt

Long-Term Contract Losses Illustration: Loss on Unprofitable Contract LO 3 4 Losses on percentage-of-completion and completed contract methods on long-term contracts. Long-Term Contract Losses Illustration: Loss on Unprofitable Contract For the Completed-Contract method, companies would recognize the following loss : LO 4 Apply the completed contract method for long-term contracts. Construction contractors should disclosure: the method of recognizing revenue, the basis used to classify assets and liabilities as current (length of the operating cycle), the basis for recording inventory, the effects of any revision of estimates, the amount of backlog on uncompleted contracts, and the details about receivables. Disclosures in Financial Statements Revenue Recognition Before Delivery LO 4 Apply the completed contract method for long-term contracts. In certain cases companies recognize revenue at the completion of production even though no sale has been made. Completion-of-Production Basis Revenue Recognition Before Delivery Examples are: precious metals or agricultural products. LO 4 Apply the completed contract method for long-term contracts. When the collection of the sales price is not reasonably assured and revenue recognition is deferred. Revenue Recognition After Delivery LO 5 Describe the installment-sales and cost-recovery methods of accounting. Methods of deferring revenue: Installment-sales method Cost-recovery method Deposit method Generally Employed Recognizes income in the periods of collection rather than in the period of sale. Recognize both revenues and costs of sales in the period of sale, but defer gross profit to periods in which cash is collected. Selling and administrative expenses are not deferred. Installment-Sales Method Revenue Recognition after Delivery LO 5 Describe the installment-sales and cost-recovery methods of accounting. The profession concluded that except in special circumstances, “the installment method of recognizing revenue i