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Revenue Recognition

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Judgments about whether revenue should be recognized are among the most contentious that an auditor faces. Following are a number of situations in which the auditor will be required to either acquire additional information or make decisions about the amount of revenue to be recognized.

Required
a. Identify the primary criteria the auditor should use in determining revenue to be recognized.

Revenues are defined as inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities hat constitute the entity's ongoing major or central operations.

From an accounting standpoint, revenue is considered to be realized when two criteria are satisfied: -
1. Objective evidence exists as to the amount of the revenue.
2. All necessary cost of generating the revenue have been incurred or can be
reasonably estimated.

In the application of these criteria, revenue is generally considered to be earned when goods are sold or services have bee performed and are billable.

b. For each of the scenarios:

? Identify the key issues to address in determining whether revenue should be recognized.
? Identify additional information the auditor may want to gather in making a decision on revenue recognition.
? Based only on the information presented, develop a rationale for either the recognition or nonrecognition of ...

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Revenue recognition: Identify the point of revenue recognition the five listed situations.

See attached problem

1. Identify point of revenue recognition.

The following independent situations require professional judgment for determining when to recognize revenue from the transactions.

Southwest Airlines sells you an advance-purchase airline ticket in September for your flight home at Christmas.

Ultimate Electronics sells you a home theatre on a "no money down, no interest, and no payments for one year" promotional deal.

The Toronto Blue Jays sell season tickets online to games in the Skydome. Fans can purchase the tickets at any time, although the season doesn't officially begin until April. The major League baseball season runs from April through October.

You borrow money in August from RBC Financial Group. The loan and the interest are repayable in full in November.

In August, you order a sweater from Sears using its online catalog. The sweater arrives in September, and you charge it to your Sears credit card. You receive and pay the Sears bill in October.

Instructions:

Identify when revenue should be recognized in each of the above situations.

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