Chapter-6，-Receivables-and-Revenue-Recognition.ppt

FINANCIAL ACCOUNTING AN INTRODUCTION TO CONCEPTS, METHODS, AND USES 12th Edition Learning Objectives Develop an introductory understanding of the quality of earnings as a concept of evaluating generally accepted accounting principles discussed in Chapters 6 to 12. Understand why the allowance method for uncollectible accounts matches bad debts with revenues better than the direct write-off method. Apply the allowance method for uncollectible accounts. Analyze information on accounts receivable to evaluate a firm’s management of its credit operation. Learning Objectives Develop a sensitivity to issues in recognizing and measuring revenues and expenses for various types of businesses. Cement an understanding of the concept that net income over sufficiently long periods equals cash inflows minus cash outflows other than transactions with owners (a measurement issue), regardless of when firms recognize the revenues and expenses (a timing issue). Chapter Outline Financial Reporting Environment Quality of Earnings Review of revenue recognition principles Application of income recognition principles Revenue recognition at time of sale Analyzing information on accounts receivable Chapter Outline Income recognition at times different from sale Summary illustration of income recognition methods Format and classification with the Income Statement An International Perspective Chapter Summary Appendix 6.1 – Effects on the Statement of Cash Flows of Transactions Involving Accounts Receivable Quality of Earnings Refers to the ability managers have to use discretion in measuring and reporting earnings This discretion may involve: Choosing among alternative accounting principles Making estimates Timing transactions in order to control recognition High quality earnings are presumed to be fair representations of the economic performance of the firm Low quality earnings overstate fair earnings Income Recognition Principle Revenue is recognized (recorded) when both: The firm has perf