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Issues in the timing of revenue recognition; irregular items

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Why are there so many revenue recognition methods?

Why is it so subjective and what are the implications to the quality of the income statement?

What are the requirements for items to qualify as irregular items on an income statement?

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Solution Summary

The solution discusses the rules regarding revenue recognition and the matching principle, and also includes seven types of transactions which demonstrate the problems that can arise in applying the rules. Irregular items are discussed as to character of the item and placement in the financial statements. Three examples of irregular items are explained.

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There really are only two key conditions that must be met for the recognition of revenue, and they sound so simple: the seller must have completed his part and must be assured of payment. But then, there are the discussion issues:

1. Cash or accrual basis of accounting: does a sale happen when the cash is received or when the invoice is issued?
2. The matching principle: to have the correct expenses offset against the proper revenue
3. The problem of completion taking more than one year, as in building a bridge. Reporting on the percentage of completion is tricky because it involves estimates
4. Is a deposit, or advance ...

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