Revenue recognition – the accounting term for determining the amount of revenues to be “booked” for purposes of calculating a firm’s earnings in a given period – is an important, complex and controversial issue. The importance of revenue recognition stems from the accountant’s approach to calculating earnings, which is to first calculate recognized (“booked”) revenues, and then deduct the accounting costs of earning those revenues (a process known as “matching costs with revenues”). Consequently
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words, define “revenues.” Explain how revenues are different from “gains.” Revenues are the monies that are brought in as a result of the business’ core functions in their respective industry. Revenues are different from gains in that revenues can be accounted for, while still taking a loss in the overall profitability. If an item were to be sold below cost, it brings revenue (selling price), but was sold at a loss. B. Describe what it means for a business to “recognize revenues.” What specific
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(2005) examined revenue recognition practices in the software industry. Software firms derive revenue from software licensing and post-contract customer support. In both cases, the point in time when significant risks and rewards of ownership are transferred to the buyer and amounts to be receive can be reliably measured are unclear. Consequently, there is scope for alternative revenue recognition practices in the industry. With respect to licensing, one alternative is to recognize revenue when the licensing
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Chapter 5 Income Measurement and Profitability Analysis exercises Exercise 5-1 Requirement 1 Year Income recognized 2011. $250,000 ($400,000 - 150,000) 2012. – 0 – 2013. – 0 – 2014. – 0 – 2015. – 0 – Total $250,000 Requirement 2 | | | | | |Year |Cash Collected |Cost Recovery(37.5%)
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Revenue is defined in the Framework for the Preparation and Presentation of Financial Statements (2008) as increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decrease of liabilities that result in increase in equity, other than those relating to contributions from equity participants. Revenue is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates
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Issues With Revenue Recognition within the Software Industry The Isoft Example Financial Controller-SoftWarehouse Ltd This report has been prepared for the Board of Directors of SoftWarehouse Ltd for elucidation about the contentious issues that have given rise to the publication of the article concerning Isoft’s issues with revenue recognition. Finally, it will also assess whether or not these issues are likely to affect SoftWarehouse Ltd. TABLE OF CONTENTS Executive Summary: 3 Introduction:
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Case: “Lenovo: Building a Global Brand” Analysis Problem Statement By facing more and more intensive domestic and international competition in the PC market, Lenovo’s global market share shrank by 6.8% in the average of first and second quarter of 2005. It can be said that this result came from the fact that they don’t have a specific, unique, and competitive marketing strategy in the world other than China. If this market share drop continued, it could be obvious that Lenovo would become a loser
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Automations Systems is a capital equipment and testing instrument manufacturer and supplier to electronics based and semiconductor industries. During 1999, Boston Automation had three divisions- Glendale division, Advanced Technology Division and Technical Devices division. Problem Statement: The CFO of the company, Daniel Fischer undertakes a revenue recognition review for each of the 3 divisions as SEC has issued SAB 101 guidelines. The effects of applying this guideline would be reported
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earnings by manipulating the recognition of revenue. Among the most common methods of doing this are the bill-and-hold transaction and a long list of sham transaction involving shipping, billing and/or related-party involvements. Both the SEC and the AICPA seek to increase independent auditors' awareness of problems associated with these practices. Full Text: | Copyright American Institute of Certified Public Accountants Oct 1999 | [Headnote] Where there's revenue-recognition deviation, there could
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Revenue recognition practices are one of the most common reasons for accounting restatements. Many would believe that it is a basic principle: when a sales transaction occurs, revenue is recorded. Unfortunately, there are many different sales and services that make revenue recognition a much more complex issue. It is difficult to develop guidelines applicable to all industry transactions to record revenue. There are two basic guidelines to follow when decided if a company should recognize revenues
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