Steps Of Recognizing Revenue For The Goods And Services

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As stated earlier in the paper, under the amended revenue recognition standard, companies will undertake five steps in recognizing revenue for the goods and services they provide. The steps are as follows: Identify the contract(s) with a customer, Identify the performance obligations in the contract, Determine the transaction price, Allocate the transaction price to the performance obligations in the contract, and Recognize revenue when (or as) the entity satisfies a performance obligation. Also included in the update is disclosure requirements that entities must adhere to. Firms are expected to disclose “sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers” (IFRS 15:1). 2.1 Description of the five steps The first step in the revenue recognition process is identifying the contract with customers. It is an important step because it determines which contracts falls under the new update on revenue recognition. According to Kieso, Weygandt, and Warfield, the update should be applied to contracts if the following factors are present: • The contract has commercial substance; • The parties to the contract have approved the contract and are committed to perform their respective obligations; • The company can identify each party 's rights regarding the goods or services to be transferred; and • The company can identify the payment terms for the goods
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