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ACFM 321 Exam 2
| Term | Definition |
|---|---|
| 5 Steps to Revenue Recognition | 1. Identify the contract 2. Identify the performance obligation(s) 3. Determine the transaction price 4. Allocate the transaction price 5. Recognize revenue when (or as) each performance obligation is satisfied |
| Journal Entry to Recognize Some Revenue & Defer Rest | Debit cash or accounts receivable, and Credit revenue and deferred revenue |
| Journal Entry to Record COGS | Debit COGS, Credit Inventory |
| Journal Entry to Un-Der Revenue | Debit deferred revenue, credit revenue |
| Establishes the legal rights and obligations of the seller and customer with respect to one or more performance obligations | Contract |
| Contract Only Exists If: | Has commercial substance Has been approved by the seller and customer Specifies the rights of the seller and customer Specifies payment terms Is probable that the seller will collect the amount it is entitled to receive |
| Promise to transfer a good or service that is distinct | Performance Obligation |
| Good or Service is Distinct If It Is Both: | Capable of being distinct (customer could use it on its own or with other readily available resources) Separately identifiable from other goods or services in the contract |
| Things That Are NOT Distinct Performance Obligations | Prepayments Quality-Assurance Warranties Right of Return |
| Things That Are Distinct Performance Obligations | Extended Warranties Options that provide a Material Right to the customer |
| How Do We Value a Material Customer Right? | Discount Dollars = what you would pay without discount - what you would pay with discount Discount dollars * % redemption = SSP for option |
| Amount the seller expects to be entitled to receive in exchange for transferring goods or services | Transaction Price |
| Calculate Expected Value | You take each outcome and multiply it by its probability of it happening and then add them up, essentially is a weighted average |
| Calculate Most Likely Amount | You take the most likely event outcome number |
| Journal Entry to Record Sales Returns in the Current Period | Debit sales returns, Credit cash Debit inventory, Credit COGS |
| Journal Entry to Estimate Remaining Returns at Year-End | Debit estimated returns, Credit refund liability Debit inventory-expected returns, Credit COGS |
| Journal Entry to Record Sales Returns From a Prior Period | Debit refund liability, Credit cash Debit inventory, Credit inventory-expected returns |
| What Does a Principal and Agent Receive? | Principal receives gross revenue, while agent receives net commission |
| Split the Contract into Goods and Financing if Payment is | > 1 year away |
| For Goods | Discount revenue to the present value to adjust for the time value of money |
| For Financing | Amortize the discount and recognize interest revenue over time using the effective interest method |
| Calculate the Effective Interest Method | Balance * Interest Rate = Interest |
| Discount on Notes Receivable is... | Interest revenue |
| Premium on Notes Receivable is: | Less interest revenue |
| If Seller Receives Cash > 1 Year Before Delivery... | Calculate interest expense |
| If Seller Delivered Today, and Cash Comes Later... | Calculate interest revenue |
| Journal Entry Significant Financing Component - Prepayment (Loan from Customer) Delivery Did Not Happen Yet | Debit cash, Credit deferred revenue |
| Journal Entry Significant Financing Component - Prepayment Delivery Finally Happened | Debit interest expense, deferred revenue, Credit sales revenue |
| Journal Entry Significant Financing Component - Receivable (Grant Loan To Customer) | Debit notes receivable, Credit discount on notes receivable, sales revenue |
| Journal Entry Significant Financing Component - Receivable Paid Off | Debit cash, notes receivable, Credit interest revenue, notes receivable |
| When Customer Prepays... | Discount prepayment to PV and use effective interest method to calculate interest expense |
| When Customer Pays Later... | Discount revenue and use effective interest method to calculate interest revenue |
| Calculate Interest Revenue/Expense Using Effective Interest Method | Net Note * Interest Rate * Time Net Note = Face Value of Note - Discount OR Face Value of Note + Premium |
| Journal Entry to Record Accrued Interest Revenue | Debit discount on notes receivable, Credit interest revenue |
| Calculate Adjusted Market Assessment Approach | Take the SSP and calculate the & of Total SSP (SSP/Total SSP), then take that percent and multiply it by the total revenue to find the allocated revenue |
| Calculate Expected Cost Plus Margin Approach | Take cost * % margin (1+ percent) to calculate the cost + margin, then find the % of total cost + margin (Cost + Margin / Total Cost + Margin), then take the % of total cost + margin * total revenue to find the allocated revenue |
| Calculate Residual Approach (if selling price is highly variable or uncertain) | Find the leftover amount (revenue - SSP of the other obligations) |
| Control is Likely to Have Transferred to the Customer If the Customer Has: | An obligation to pay the seller, legal title to the asset, physical possession of asset, assumed risks and rewards of ownership, and accepted the asset |
| Recognize Revenue Over Time If ANY of These 3 Apply: | Customer simultaneously receives and consumes benefits, seller's performance creates/enhances asset the customer controls, or seller's performance does not create asset with alternative use and seller has right to payment for performance completed to date |
| If None of Those 3 Criteria Apply,... | Recognize revenue at the time when the performance obligation has been completely satisfied, usually at end of contract |
| If Recognizing Over Time... | Measure progress using output or input methods |
| For Functional IP License... | Recognize at a point in time |
| For Symbolic IP License... | Recognize over time |
| For Bill-And-Hold... | Recognize upon delivery |
| For Consignment... | Recognize upon sale to end customer |
| For Gift Cards... | Recognize when redeemed or likelihood of redemption becomes remote |
| Required Disclosures for Income Statement | Bad Debt Expense, Interest Revenue/Expense |
| Required Disclosures for Balance Sheet | Contract liabilities, contract assets, accounts receivable |
| Required Disclosures for Disclosure Notes | Nature, amount, timing, and uncertainty of revenue and cash flows |
| LT Construction Revenue Recognition % of Completion Method | Costs incurred to date / total estimated costs, use the percentage progress to recognize revenue, COGS, and gross profit |
| What are the 4 Annual Entries for LT Construction Revenue | Incur costs, bill customer, receive payment, recognize revenue / COGS / Gross profit |
| Journal Entry to Incur Costs | Debit construction in progress (CIP), Credit inventories |
| Journal Entry to Bill Customer | Debit accounts receivable, credit billings |
| Journal Entry to Receive Payment | Debit cash, Credit accounts receivable |
| Journal Entry to Recognize Revenue / COGS/ Gross Profit | Debit cost of construction, Credit revenue Debit or Credit construction in progress to reflect gross profit |
| What do you do if you expect an overall contract loss at any point? | Immediately adjust the CIP to recognize total estimated loss |
| Journal Entry to Transfer Title at End | Debit billings and Credit CIP |
| Calculate Reconciled Bank Balance | Balance + deposits outstanding - checks outstanding |
| Calculate Reconciled Book Balance | Balance + collections made by bank +/- other increases/decreases in cash - NSF checks |
| Bank Reconciliation is Making Sure | That the two reconciled balances equal each other |
| You record journal entries only if... | There are adjustments to the book balance, can only fix for your own books |
| Gross Method Sales Discounts | Records sale and receivable at the gross invoice amount and recognizes discounts only if they are taken |
| Net Method Sales Discounts | Records sales at discounted amount and recognizes additional revenue if discounts are not taken (forfeited) |
| Journal Entry for Gross Method Sales Discounts (if discount is taken) | Debit cash, sales discount, Credit accounts receivable |
| Journal Entry for Gross Method Sales Discounts (if discount is not taken) | Debit cash, Credit accounts receivable |
| Journal Entry for Net Method Sales Discounts (if discount is taken) | Debit Cash and Credit accounts receivable |
| Journal Entry for Net Method Sales Discounts (if discount is not taken) | Debit cash, Credit accounts receivable, sales discounts forfeited |
| Calculate Current Expected Credit Loss | Take the receivable amounts * percent which equals the expected, add all of the expected up. Credit loss is taking the original amount - expected total |
| An aging schedule and calculated ending collectible balance tells you... | Ending balance of AFDA, NOT bad debts expense |
| Think about these components for note receivable: | N, I, PV, PMT, FV (make table) |
| To calculate Interest Revenue... | Net Note (face value of note + premium - discount) * stated or inferred interest rate * proportion of year |
| What if note does not have a stated interest rate? | Difference between cash selling price and face value of note is your total interest |
| When you have a note with a stated interest rate... | Need to find the PV value and make journal entry |
| When you have a note without a stated interest rate... | Need to find Interest Value, the PV or FV value need to be put in as negative and make journal entry |
| Steps for Discounting Note Receivable with Interest | 1. Gather (principal, interest rate, maturity date, interest compound/monthly, determine maturity value) 2. Accrue interest up until date note is transferred 3. Find discounted PV of note for buyer/bank 4. Receive cash, remove accounts, calculate loss |
| Journal Entry for No Interest Recorded At Issuance | Debit note receivable, Credit sales revenue |
| Journal Entry for No Interest Recorded At Collection | Debit cash, Credit note receivable |
| Journal Entry for Normal Interest Formula With Stated Rate At Issuance | Debit note receivable, Credit sales revenue |
| Journal Entry for Normal Interest Formula With Stated Rate At Collection A Year Later | Debit cash, Credit note receivable, interest revenue |
| Journal Entry for Effective Interest Method No Stated Rate At Issuance | Debit notes receivable, Credit sales revenue, discount on notes receivable |
| Journal Entry for Effective Interest Method No Stated Rate A Few Months In | Debit discount on notes receivable, Credit interest revenue |
| Journal Entry for Effective Interest Method Stated Rate At Issuance | Debit note receivable, Credit sales revenue, discount on notes receivable |
| Journal Entry for Effective Interest Method Stated Rate A Few Months In | Debit discount on notes receivable, Credit interest revenue |
| Journal Entry When Cash = Preset Value At Issuance | Debit note receivable, credit cash, discount on notes receivable |
| For bonds, the stated rate is the... | Coupon rate and tells us the PMT |
| For bonds, the market rate is the... | Interest portion |
| Journal Entry for Recording Credit Sales | Debit accounts receivable, Credit sales revenue |
| Journal Entry for Estimating Bad Debts | Debit bad debt expense and Credit AFDA |
| Journal Entry for Recording Write-Offs | Debit AFDA and Credit accounts receivable |
| Journal Entry for Recording Recoveries | Debit accounts receivable and Credit AFDA |
| Journal Entry for Recording Cash Collections | Debit cash and Credit accounts receivable |
Created by:
MOWGaming04
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