Chapter 6 - Revenue recognition. After studying this chapter, you should be able to: Understand the economics and legalities of selling transactions from a business perspective, identify the five steps in the revenue recognition process, identify the contract with customers,. | 1 CHAPTER 6: REVENUE RECOGNITION 2 2 Chapter 6: Revenue Recognition After studying this chapter, you should be able to: Understand the economics and legalities of selling transactions from a business perspective. Identify the five steps in the revenue recognition process. Identify the contract with customers. Identify the separate performance obligations in the contract. Determine the transaction price. Allocate the transaction price to the separate performance obligations. Understand how to recognize revenue when the company satisfies its performance obligation. Analyze and determine whether a company has earned revenues under the earnings approach. Identify other revenue recognition issues. Describe presentation and disclosure regarding revenue. Identify differences in accounts between IFRS and ASPE and potential changes. 3 3 Revenue Recognition 4 4 Understanding Sales Transactions Accounting for revenues is often very complex Much of complexity is caused by the structure of the sales transactions To properly account for sales transactions, accountants must understand the business of the entity and the nature of the transaction Key questions for understanding the sales transactions from a business perspective are: What is being given up? What is being received? Normally specified in sales agreements 5 5 LO1 What is being sold? Sales transactions often involve transfer of goods, services, or both (known as deliverables) Accounting is different under each situation Sale of goods: tangible assets with a finite point when control transfers to buyer (generally with transfer of legal title and possession) Sale of services: legal title and possession irrelevant Sale of goods and/or services combinations: complexity in measuring each component of bundled sales or multiple deliverables 6 6 LO1 What is being received? Most business transactions are reciprocal, something is given up and something is received Consideration being received for goods and/or services sold is . | 1 CHAPTER 6: REVENUE RECOGNITION 2 2 Chapter 6: Revenue Recognition After studying this chapter, you should be able to: Understand the economics and legalities of selling transactions from a business perspective. Identify the five steps in the revenue recognition process. Identify the contract with customers. Identify the separate performance obligations in the contract. Determine the transaction price. Allocate the transaction price to the separate performance obligations. Understand how to recognize revenue when the company satisfies its performance obligation. Analyze and determine whether a company has earned revenues under the earnings approach. Identify other revenue recognition issues. Describe presentation and disclosure regarding revenue. Identify differences in accounts between IFRS and ASPE and potential changes. 3 3 Revenue Recognition 4 4 Understanding Sales Transactions Accounting for revenues is often very complex Much of complexity is caused by the structure of the .
