Intermediate Accounting 16 Recognizing Revenue Recognizing Revenue Chapter 16 Learning Objectives Apply the revenue recognition principle3>. Describe accounting issues for revenue recognition at point of sale. Apply the percentage-pletion method for long-term contracts. Apply pleted-contract method for long-term contracts. Identify the proper accounting for losses on long-term contracts. Describe the installment-sales method of accounting. Explain the cost-recovery method of accounting. Revenue Recognition Current Environment Guidelines for revenue recognition Departures from sale basis Revenue Recognition at the Point of Sale Revenue Recognition before Delivery Revenue Recognition after Delivery Sales with buyback agreements Sales when right of return exists Trade loading and channel stuffing Installment-sales method Cost-recovery method Deposit method Summary of bases Concluding remarks Percentage-pletion method Completed-contract method Long-term contract losses Disclosures Completion-of-production basis The Current Environment One study noted restatements of revenue: Result in larger drops in market capitalization than other types of restatement. Caused eight of the top ten market value losses in a recent year. Revenue recognition has been the largest source of pany restatements over the past decade. The Current Environment The revenue recognition principle provides panies should recognize revenue Guidelines for Revenue Recognition LO 1 Apply the revenue recognition principle. when it is realized or realizable and when it is earned. The Current Environment Sale of product from inventory Type of Transaction Rendering a service Permitting use of an asset Sale of asset other than inventory Date of sale (date of delivery) Services performed and billable As time passes or assets are used Date of sale or trade-in Gain or loss on disposition Revenue from interest, rents, and royalties Revenue from fees or service