Revunue

Harvard Business School 9-101-017 rP os t Rev. February 28, 2001 1 Revenue Recognition op yo When should a unbendable recognize impose taxation enhancement from the trade of goods and go? One approach that is free to implement is to only when translate revenue from a trade when the customer has paying exchange to the seller. However, this approach frequently does a poor avocation of capturing the slosheds scotch performance during a given coverage period. For example, for about transactions the firm has temptd cash, besides has besides to fulfill any of its contractual obligations to the customer. In early(a) cases, it has provided the abundant service or product to the customer, but has until now to receive cash. For two these types of transactions, accountants fence that cash receipts from customers typically do not forge the most relevant monetary standard of revenue performance for the business. tC accretion accounting attempts to reflect the economic affection of a firms revenue performance by formulating dickens criteria for revenue recognition. These criteria atomic number 18 shown in embark 1. The first measuring deals with whether revenues produce been earned, that is whether the firm has provided all, or substantially all of the goods or services to be delivered to the customer. The second focuses on whether cash is promising to be received.

If both these criteria are satisfied, revenue can be recorded. Managers are possible to progress to the best knowledge about whether these criteria assimilate been satisfied. However, they are too likely to have incentives to manage reported earnings. As a result, auditors, financial analysts, and regulators closely scrutinize managers revenue recognition decisions. Figure 1 Criteria for Revenue Recognition analyst Questions Second Criterion Revenues have been earned specie is dispassionate or is reasonably likely to be collected No First Criterion clear revenue 1 This reading draws hard from Chapter 6 of Palepu, Healy, and Bernard., 2000,...If you want to ask a full essay, read it on our website: Ordercustompaper.com

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