ACC 100 Study Guide - Final Guide: Cash Flow Statement, Gross Margin, Revenue Recognition

Revenue is recognized based on a five-step process that is applied to a company's revenue arrangements.

Requirements: 1. Describe the revenue recognition principle. Briefly describe the five-step process.

2. Explain the importance of contracts when analyzing revenue arrangements.

3. How are fair value measurement concepts applied in implementation of the five-step process?

4. Briefly discuss how the revenue recognition principle relates to the definitions of assets and liabilities.

5. In the previous revenue recognition guidance, revenue is not be recognized unless the revenue was realized or realizable (also referred to as collectibility). Is collectibility a consideration in the recognition of revenue? Explain.

6. Revenue is usually recognized at the point of sale (a point in time). Revenue may be also recognized over time. Give an example of the circumstances in which revenue is recognized over time and accounting merits of its use instead of the point-of-sale basis.

Which of the following statements about accrual-basis accounting is not true?

a. It uses the revenue recognition principle.

b. It uses the expense recognition principle

c. It is required for external accounting reports.

d. It requires the timing of cash receipts to be in the same period as revenues are recognized.

Two first year accounting associates are discussing the timingof revenue recognition for long-term construction contracts, andmore specifically, discussing which method best reflects thepoint-of-sale/delivery. One associate, Taylor, believes recognizingrevenue at the time of completion is the preferred method and mostlike point-of-sale/delivery revenue recognition.

The other associate, Alex, believes recognizing the revenue overtime is the preferred method because revenue is recognized as timeprogresses (as portions of the contract are completed), and therevenue can be reported sooner.

Do you agree with Taylor or with Alex? Explain why you agreewith that associate.