Revenue Recognition last updated January 22, 2010
- Phillips, T. J., Luehlfing, M. S., Daily, C. M. The Right Way to Recognize Revenue , Journal of Accountency, June 2001, 39 - 46
- Levitt, A . "THE NUMBERS GAME" (Speech, 10/28,1998)
- Author, New Rule to Hit Revenues. Electronic News(1991), March 30,1998 v44 n2212 p54(1)
- Wipperfurth, H. "Hot Air Accounting", Forbes (May 5, 1997)
- Morgenson, G. "Pie in the Sky", Forbes (December 16, 1996)
- Compare the revenue recognition methods of Microsoft and Systemsoft as described in the following two articles. How do they differ and why do you think they are different? Fox, J. "Learn to Play the Earnings Game (and Wall Street Will Love You)". Fortune (March 31, 1997)
- Foroohar, K., "Accounting A-Go-Go", Forbes (February 10, 1997)
- Greenberg, Herb. "Shipping Bricks and Other Tricks", Fortune (September 29, 1997
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SEC guidelines for revenue recognition: SAB 104 ; FAQs about SAB 101 and a speech by the SEC Chief Accountant (Lynn Turner), March 2001: Revenue Recognition
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Special Situations (Summaries of Financial Accounting Standards): Revenue recognition where a right of return exists: SFAS 48; Franchise fee revenue SFAS 45; Sale of real estate SFAS 66; Insurance companies: SFAS 60; Record and music industry: SFAS 50; Cable television companies: SFAS 51; Motion picture industry: SFAS 53. Broadcasters: SFAS 63. Note: You find the full text on your FARS CD
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Examples
Rev2.xls: At the point of sale; b. during production; c. proportionate performance; d. after cash is collected:
Construction.xls: Long term construction contracts: a. profitable; b. loss during one period, but overall profit; c. overall loss:
Costrecovery.xls If you really don't trust your customers: A comparative example of the installment and the cost recovery method
NR.xls: "Interest
free" Notes receivable. 
Less
than one year, more than one year, with and without periodic payments.
How to determine the correct amount of revenue
Revenue recognition is one of the most important subjects in financial reporting. It is directly related to the following accounting principles and constraints: Recognition; realization; matching; periodicity; conservatism; relevance and reliability. In examining the alternative revenue recognition methods, think about how they are affected by the principles and constraints discussed above. An important issue in deciding when to recognize revenue is the "completion of the earnings process"
The earnings process is considered to be completed when the following criteria have been met:
- All costs have been incurred, or, any future remaining costs are minor and can be estimated (i.e., warranties)
- An exchange has occurred (title to goods has been transferred; services have been performed)
- Cash has been received, or, receipt of cash is reasonably certain. (I.e., uncollectible account expense can be estimated and is minor) Note that in some exceptional situations items (b) and (c) may not have actually occurred, but are virtually certain. In that case revenue may be recognized after virtually all costs have been occurred. This applies essentially to
Commodity sales under government price support schemes (wheat for example)
or
Production and sale of strategic minerals that can only be sold to the government
for predetermined, guaranteed prices. (Think plutonium!)
Examine the various revenue recognition methods in relation to the "completion of the earnings process" criteria.
Find the footnote in which the companies linked below describe their revenue recognition methods. Compare the different methods described and try to relate them to the revenue recognition methods and criteria discussed above and in the textbook. Compare the revenue recognition methods, try to understand why they may be different
| Microsoft | Systemsoft | DuPont | IBM | Boeing |
Note these are pretty old quizzes, but they may still be somewhat helpful for practice purposes
A new Resource that may be helpful to some of you: http://www.studymyaccounting.com/
Information for Exams:
- You may bring one (1) page of notes per chapter (one side of a sheet = one page!)
- Bring a calculator, a large blue book, and a regular scantron
- I strongly prefer it if you write with a pen (not pencil)
- Both midterm exam consist of 10 multiple choice question and several problems and/or essay questions
- Exam 1 covers chapters 1, 7, and 8
- Exam 2 covers chapters 9 and 10
- Exam 3 covers chapter 10 (partial), 11, 14 and 6
Download the critical thinking rubric (for cases)
| Chapter resource pages |  |
| Communication resources | |
Contact Information
Email: heidemarie.lundblad@csun.edu - Notice: I do not read or answer email from unidentified sources.
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Department Telephone Number: (818) 677-2461
