Revenue is usually recognized at the point of sale (a point in time). Under special circumstances, however, bases other than the point of sale are used for the timing of revenue recognition.Instructionsa. Why is the point of sale usually used as the basis for the timing of revenue recognition?b. Disregarding the special circumstances when bases other than the point of sale are used, discuss the merits of each of the following objections to the point-of-sale basis of revenue recognition:1. It is too conservative because revenue is earned throughout the entire process of production.2. It is not conservative enough because accounts receivable do not represent disposable funds, sales returns and allowances may be made, and collection and bad debt expenses may be incurred in a later period.c. Revenue may also be recognized over time. Give an example of the circumstances in which revenue is recognized over time and accounting merits of its use instead of the point-of-sale basis.

Revenue recognition: GAAP (Generally accepted accounting principle) states that under specific…

Answered: Revenue is usually recognized at the…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 2C: The first step in the revenue recognition process is determining if a contract is in place between...

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Instructions

a. Why is the point of sale usually used as the basis for the timing of revenue recognition?

b. Disregarding the special circumstances when bases other than the point of sale are used, discuss the merits of each of the following objections to the point-of-sale basis of revenue recognition:

1. It is too conservative because revenue is earned throughout the entire process of production.
2. It is not conservative enough because accounts receivable do not represent disposable funds, sales returns and allowances may be made, and collection and bad debt expenses may be incurred in a later period.

c. Revenue may also be recognized over time. Give an example of the circumstances in which revenue is recognized over time and accounting merits of its use instead of the point-of-sale basis.

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