Worldwide Wires

Revenues are recognized in a net basis and only commissions they retain from each sale are reflected under the company’s financial statements.

In 2018 it will be mandatory that AASB111 and AASB108 are replaced by AASB15. This new standards main principle necessitates entities to recognise revenue to portray the transfer of goods or services to customers in amounts that mirror the payment, of which the company expects to be entitled. AASB15 also provides regulation for transactions that were not previously addressed thoroughly, such as service revenue and contract modifications. Essentially it presents a 5 step system of Identifying the contracts with the customer, identifying the separate performance obligations in the contract, determining the transaction price, allocating the transaction price to certain performance obligations and recognizing revenue when or as the entity fulfils performance obligations – This is demonstrated towards the end of the report with a

2. On the basis of the response to Question 1, discuss the revenue recognition accounting literature

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

While net cash is critical to determine the ability of the organization to meet its immediate requirements, the non-cash factors that are included in the net income calculation portray a more accurate view of the long-term profitability. Also because of the timing differences between when revenue and expenses are recognized, the accrual method behind the net income model will produce visibility that is more accurate. For example, a month that produces low volume of sales and a high volume of receivable could produce a positive cash flow when in reality that low sales volume will negatively affect the subsequent months. This variance would be visible in the net income but would not be visible in net cash.

Since 2002, Financial Accounting Standards Board (FASB) and International Accounting Standards Board’s (IASB) have been working toward “convergence” of US General Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). They have made significant progress in efforts to converge critical accounting standards such as those dealing with revenue recognition, financial instruments and leases. Once these projects are complete, the "era" of convergence will be at an end. Nevertheless, the benefits for investors of eventually getting to consistently applied, high-quality, globally accepted accounting

Purpose of research. The purpose of research is to analyze and compare the revenue recognition under FASB and IFRS provisions. The research is built on other studies that focus on the revenue recognition model and converged standards. The value of this study cannot be overemphasized since the revenue is an essential metric of financial statements that provides a comprehensive knowledge to users of financial information. The revenue recognition framework is under the development and scrutiny since 2002.

Ignoring the revenue recognition principle could end up distorting an entity's balance sheet/statement of financial position. It is important to note that without adherence to this principle, it could be possible for entities experiencing a decline in sales to hide such an occurrence by modifying some items. In such a case, a refundable cash inflow i.e. a deposit used as security for the possible completion of an agreed upon task at a specified future time could be recognized as revenue. Under this principle, such an inflow should ideally be recognized as a liability and later as revenue only after the said task has been completed.

The revenue recognition principle dictates that revenue is recognized in the period in which the cash is received.

“An income statement measures the performance over some period of time, usually a quarter or a year”, states the authors of Essentials of Corporate Finance. (Ross, Westerfield, Bradford 2014, p. 27). There are three aspects of an income statement that a financial manager needs to keep in mind when analyzing the numbers; GAAP, cash versus noncash item, and time and costs. GAAP will show revenue when it accrues. According to the authors of Essentials of Corporate Finance, “The general rule is to recognize revenue when the earnings process is virtually complete and the value of an exchanges of goods or services is known or can be reliably determined” (Ross, Westerfield, Bradford 2014 p. 28). As some production costs of items produced are made on credit, the revenue on that item will not be recognized until the sale of that item occurs; any other costs incurred in assembling that product will also not be recognized until the time of its sale (Ross, Westerfield, Bradford 2014 p.28- 29). With this situation occurring, the income statement might not be able to represent all the

ASC 605, Revenue Recognition, provides guidance for specific transaction revenue recognition and several matters related to activities which generate revenues. Some examples include the sale of products, services performed, and the gain or loss on conversions of nonmonetary assets to monetary assets. Revenue is recognized when it is realized or realizable and earned. In addition, the section provides information on (1) how the vendor will provide deliverables to the customer,(2) when to report revenue gross or net of certain amounts paid to others, (3) the accounting of credit given by a vendor to a customer, and (4) the use of the milestone method in arrangements that include research or development deliverables.

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).

IAS 18 considers the accounting procedure of potential components of revenue organization primarily from transactions involving the sale of goods, rendering of services, as well as through other organizations or individuals property of the reporting organization, giving interest, dividends or royalties. If the probability of the economic

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

Internet: Global network of networks using universal standards to connect millions of different networks (Kenneth C Laudon and Jane P Laudon., 2010).