Why Is Revenue Recognition Important

Throughout history and in our own time, legitimate accounting methods have been utilized to fraudulently engage in manipulating activities that results in illicit gains to the perpetrators and losses to individuals and financial institutions.

Coverage of revenue recognition in intermediate accounting courses is typically limited to learning and applying the criteria for revenue recognition outlined in the Financial Accounting

The major benefit of this proposal is that agreement exists that there is more objectivity in measuring and determining changes in assets and liabilities than there is in measuring and determining the completion of the earning process. After taking comment letters on the discussion paper of December 2008 and an initial exposure draft in June of 2010, the boards issued a revision of the proposal in “Proposed Accounting Standards Update (Revised), Revenue Recognition (Topic 605) – Revenue from Contracts with Customers: Revision of Exposure Draft Issued June 24, 2010.” The new document left the basis of the proposal the same and added implementation guidance and a tentative date for adoption. Recognizing revenue under the standard would be a five-step

Being earned. Paragraph 83(b) of FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, states that revenue is

American Trucking Company has recently been experiencing an increase in stolen loads—a loaded tractor/trailer is stolen and the load sold. The merchandise is often worth thousands of dollars, sometimes exceeding the value of the tractor/trailer. American Trucking, while wishing to recover both the load and equipment, seeks a way to locate the tractor/trailer at all times so they can dispatch their security team to retrieve the load before it is sold on the black market (as well as to retrieve the truck/trailer before it is vandalized). They have engaged the services of Truck Locators, a provider of locating services to the trucking industry.

The following report is in response to your request for an authoritative answer regarding revenue recognition when a right of return exists. The authoritative literature that addresses the revenue recognition when right of return exists is the FASB codification. More specifically, the section regarding revenue recognition of products. This section discusses the necessary conditions for recognizing revenue when a right of return exists and the factors that may impair the ability to make a reasonable estimate of the amount of future returns. (FASB ASC 605-15-25)

Based on these guidelines, revenue should not be recognized until it is realized or realizable and

For as long as businesses have existed, so has accounting. With time, it has become more complicated and detailed, but it is still a process of keeping financial accounts in order. Through accounting, or financial reporting, a system is set up to keep track of, maintain and audit the financial proceedings. Because accounting and financial reporting of a business is so important for its accuracy and in general, a lot of ethical, technological and legal concerns are involved. In this paper, we will look identify and explore the concerns of each of these.

Background. Revenue is a financial statement item. Accounting for revenue contains standards and principles for revenue recognition. Revenue recognition rules and statutory requirements significantly evolved over the years. It became more detailed for the purpose so financial statement users can understand true company performance and projections.

According to Kimmel, Kieso and Waygandt (2011), "the revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned." Basically, this means that revenues should be recognized (or in other words recorded) on completion of the process of revenue generation i.e. once revenue has been earned. This is as per the accrual basis of accounting. Essentially, revenue recognition derives its significance from its utilization when it comes to the determination of the specific accounting period in which earnings should be recorded.

Under GAAP, revenue is recognized only when a product is shipped or the service has been rendered. In this case, Land, the CFO in the Family Games, Inc., wants to make their financial figures look good in the fiscal year of 2013 by recording the unearned $12 million in 2013 instead of 2014. Land violates the revenue recognition rule because the products haven’t shipped to the customer, and the title haven’t been transferred to the customer. Thus, the $12 million should not be recorded in 2013. The amount should recorded as income under 2014.

Bloom, R. & Kamm, J. (2014). Revenue Recognition, How we got here and where it will take us. Financial Executive (3). 48. Retrieved from: http://www.financialexecutives.org

The accounting practices at Carlton normally permit revenue recognition after the shipment of the computer systems. Peale, Gower and Quill, Carlton’s auditors, are worried about the accounting practices regarding revenue recognition of certain transactions during the

Timing of revenue recognition is a crucial part in revenue recognition. According to US GAAP, revenue should be recognized when it is realized/realizable and earned (FASB, 1984, Para. 83).

The revenue recognition principle is a foundation of accrual accounting and one of the main principles of GAAP. The revenue recognition principle is a set of guidelines that helps accountants to identify when a revenue event has taken place and how to appropriately record cash exchanges before, during, and after the revenue event. According to the revenue recognition principal, revenue must (1) be realized or realizable and (2) earned, in order to be recognized. According to the SEC revenue is realized when (1) Persuasive evidence of an arrangement exists, (2) Delivery has occurred or services have been rendered, (3) The seller’s price to the buyer is fixed or determinable, and (4) Collectability is reasonably assured. It is essential