inventory during the time period, because of an incorrect standard of cost (Dulong, 2010). Next they had a $1.4 million overstated income, because of incorrect accrual amount of incentive programs expenses. Third issue overstated income by $1 million dollars, because of timing classification of historical revenue royalties from third party vendors. Fourth issue overstated $800,000 of income, because of incorrect standards for intercompany inventory cost. Fifth is an understated income of $700,000, because
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1997-1999 Assumptions: - No potential tax effect - 60% of Microsoft’s R&D expenses were incurred after technological feasibility was established - 2-year average product life - The company begins amortizing software costs at the beginning of the following year R&D Capitalization Method: - Year n: 60% * R&D Book Value year n - Year n+1: ½ * 60% * R&D Book Value year n (straight line amortization) - Year n+2: 0 Amortization Expenses – Exemple of 1997: AM= (258-0) + (796-398) 1995 R&D recognized in the
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3) - Revenues are the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure from which costs are subtracted to determine net income. - Expenses are the economic costs that a business incurs through its operations to earn revenue. In order to maximize profits, businesses must attempt to reduce expenses without also cutting into revenues. Because expenses are such an
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Chabra Mr. Butkovic BAT 4M March 21st 2012 Case Analysis Revenue recognition As a financial advisor of Dodge Ltd the financial statements should be review by the owners or CFO of the company. This statement will display the revenue recognition in order for the owner to accurately keep track of their finances. Since, this business has costs throughout the contract, they have issues dealing with the recognition of the revenue. Some costs cannot be allotted for at the sale of the contract because
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already earned but not yet collected Accrued expense – expense already incurred but not yet paid Pro-forma entries: a. Recognition of accrued income: Accrued Income xxx Income/Revenue xxx To accrue (specific income) for the year/period b. Recognition of accrued expense: Expense xxx Accrued Expense xxx To accrue (specific expense) for the year/period 3. Adjusting entries
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CHAPTER 5 Revenue Recognition and Profitability Analysis Part A: Introduction to Revenue Recognition I. Revenue Recognition in General A. FASB definition: "Revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations." In other words, revenue tracks the inflow of net assets that occurs
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the accrual basis accounting including, forecasting and invoices recognition this method is most used. Accrual basis accounting means a company recognizes revenue when earned while cash is still pending or not yet received. The matching principle is used to recognize expenses when incurred even when the cash is not yet received. Under the cash basis accounting, companies record revenue only when the cash is received and record expenses only when the cash is paid out. The cash basis of accounting is
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* Business Entity: assumes that the business is separate from its owners or other businesses. Revenue and expense should be kept separate from personal expenses. * Going Concern: assumes that the business will be in operation indefinitely. This validates the methods of asset capitalization, depreciation, and amortization. Only when liquidation is certain this assumption is not applicable. The business will continue to exist in the unforeseeable future. * Monetary Unit principle: assumes a
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the financial reporting system depends on answers to a few fundamental questions. At what point has revenue been earned? At what point is the earnings process complete? When have expenses really been incurred? During the 1990s' boom in the stock prices of dot-com companies, many dot-com companies earned most of their revenue from selling advertising space on their Web sites. To boost reported revenue, some dot-coms began swapping web-site ad space. Company A would put an ad for its website on company
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Accruals occur when cash flows: A) Occur before expense recognition. B) Occur after revenue or expense recognition. C) Are uncertain. D) May be substituted for goods or services. Answer: B _____ 2. An example of a contra account is: A) Depreciation expense. B) Accounts receivable. C) Sales revenue. D) Accumulated depreciation. Answer:
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