ACCT10002 Chapter Notes - Chapter 3: Accrual, Revenue Recognition, Accounting Information System

74 views7 pages

orangemole587

22 May 2018

School

University of Melbourne

Department

Accounting

Course

ACCT10002

Professor

Warren McKeown

For unlimited access to Textbook Notes, a Class+ subscription is required.

It is necessary to determine the impact of each transaction on specific accounting periods

Revenue is recorded only when the cash is received

An expense is recorded only when cash is paid

Produces similar results to the accrual basis when most transactions are cash

Not suitable when most business is conducted on credit

Cash

based accounting

Records transactions and events in the periods in which they occur

Accrual

based accounting

Timing issues

Tuesday, 8 August 2017 10:23 AM

IFA Page 1

Unlock document

This preview shows pages 1-2 of the document.
Unlock all 7 pages and 3 million more documents.

Already have an account? Log in

Sales revenue

Fees

Interest

Dividends

Royalties

Rent

Revenue = increases in economic benefits arising in the course of ordinary activities of an entity

Operating cycle = length of time it takes for a business to acquire goods, sell them to customers and

collect the cash from the sale

It is probable that any future economic benefits associated with the revenue will flow to the entity

The revenue can be measured with reliability

Revenue recognition criteria:

Identify the contract with a customer

Identify the performance obligation in the contract

Determine the transaction price

Allocate the transaction price to the performance obligation in the contract

Recognise revenue when the entity satisfies the performance obligation

New accounting standard for revenue recognition:

Cost of sales

Wages expense

Rent expense

Interest expense

Electricity expense

Expense = decreases in economic benefits arising in the ordinary activities of an entity

The outflow of future economic benefits associated with the expense is probable

The expense can be measured reliably

Expense recognition criteria:

Revenue recognition criteria

Tuesday, 8 August 2017 10:23 AM

IFA Page 2

Unlock document

This preview shows pages 1-2 of the document.
Unlock all 7 pages and 3 million more documents.

Already have an account? Log in

Document Summary

It is necessary to determine the impact of each transaction on specific accounting periods. Revenue is recorded only when the cash is received. An expense is recorded only when cash is paid. Produces similar results to the accrual basis when most transactions are cash. Not suitable when most business is conducted on credit. Records transactions and events in the periods in which they occur. Revenue = increases in economic benefits arising in the course of ordinary activities of an entity. Operating cycle = length of time it takes for a business to acquire goods, sell them to customers and collect the cash from the sale. It is probable that any future economic benefits associated with the revenue will flow to the entity. Allocate the transaction price to the performance obligation in the contract. Recognise revenue when the entity satisfies the performance obligation. Expense = decreases in economic benefits arising in the ordinary activities of an entity.

Related Questions

Unit 6 GAAP Application-Conceptual Framework of Accounting TheConceptual Framework allows for the systematic adaptation ofaccounting standards to a changing business environment. The FASBuses the conceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depre-ciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole propri-etor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability Type your answers ina Word Document, and submit to the Drop Box.

maroonoyster77

GAAP Application-Conceptual Framework of Accounting the ConceptualFramework allows for the systematic adaptation of accountingstandards to a changing business environment. The FASB uses theconceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depreciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole proprietor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability

redtoad313

ACCT10002 Chapter Notes - Chapter 3: Accrual, Revenue Recognition, Accounting Information System

Document Summary

Get access

Related Documents

ACCT10002 Lecture Notes - Lecture 3: Financial Statement, Income Statement, Deferral

ACCT10002 Lecture Notes - Lecture 3: Revenue Recognition, General Ledger, Financial Statement

ACCT10002 Chapter Notes - Chapter 9: Promissory Note, Current Liability, Annual Leave

Related Questions