Revenue: Recognition, methods, regular and irregular items
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What are different criteria for recognizing revenue?
Why are there so many revenue recognition methods?
Why are the methods subjective, and what are the implications on income statement quality?
What are the differences between regular and irregular items on an income statement?
What are the requirements for items to qualify as irregular?
What are some examples of these irregular items?
What is the effect of irregular items on an investor's analysis of a company?
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Solution Summary
Your response is 480 words and discusses the reasons for different revenue models, gives examples of estimates requiring judgment in revenue computations, reveals the six common irregular items and provides examples of irregular items and their typical treatment.
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What are different criteria for recognizing revenue?
Revenue is recognized when the earnings process is complete and collection is complete or is likely to be completed. There are many different criteria for recognizing revenue because there are many different ways for the "earnings process" to occur and different levels of risk about whether the collections will occur or not.
Why are there so many revenue recognition methods?
Revenue recognition methods take into account the earnings process and collection risk elements of transactions. For instance, long term contract recognize revenue before the delivery occurs because the earnings process is considered complete as you build. Why? Because the long term contract shows that the items was "sold" before you built it! But you can't recognize revenue when you sign the contract because you haven't earned it yet. Another example is when the delivery/earnings has taken place but collection is not likely. ...
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