Revenue is usually recognized at the point of sale. Under special circumstances, dates other than the point of sale are used for timing of revenue recognition.

a. Why is point of sale usually used as the basis for the timing of revenue recognition?
b. Disregarding special circumstances when bases other than the point of sale are used, discuss the merits of both of the following objections to the sale basis of revenue recognition:
(1) It is too conservative because revenue is earned throughout the entire process of production.
(2) It is too liberal because accounts receivable do not represent disposable funds, sales returns and allowances can occur, and collection and bad debt expenses can be incurred in a later period.
c. Revenue can be recognized
(1) During production and
(2) When cash is received. For each of these two bases of timing revenue recognition, give an example of the circumstances where it is properly used and discuss the accounting merits of its use in lieu of the sales basis.

  • CreatedJanuary 22, 2015
  • Files Included
Post your question