recognition

Examples of recognition in the following topics:

• Current Guidelines for Revenue Recognition

  • Transactions that result in the recognition of revenue include sales assets, services rendered, and revenue from the use of company assets.
  • The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle.
  • Guidelines for revenue recognition will affect how and when revenue is reported on the income statement.
  • Explain how the revenue recognition principle affects how a transaction is recorded

• Expense Recognition

  • Expense recognition is an essential element in accounting because it helps define how profitable a business is in an accounting period.
  • This means it is unimportant with regard to recognition when a business pays cash to settle an expense.
  • Calculate the ending balance of an income statement account and discuss how the proper recognition of expenses affects a company's income

• Recognition of Revenue Prior to Delivery

  • Accrual accounting allows some revenue recognition methods that recognize revenue prior to delivery or sale of goods.
  • The accounting principle regarding revenue recognition states that revenues are recognized when they are earned (transfer of value between buyer and seller has occurred) and realized or realizable (collection is reasonably assured).
  • Distinguish between the percentage of completion method and the completion of production method of revenue recognition

• Importance of Recognition and Measurement

  • In accounting, recognition of revenues and expenses is based on the matching principle.
  • The revenue recognition principle and the matching principle are two cornerstones of accrual accounting.
  • In contrast to recognition is disclosure.
  • The matching principle is a culmination of accrual accounting and the revenue recognition principle.
  • Prepaid expenses are not recognized as expenses, but as assets until one of the qualifying conditions is met resulting in a recognition as expenses.

• The Importance of Timing: Revenue and Expense Recognition

  • According to the principle of revenue recognition, revenues are recognized in the period when it is earned (buyer and seller have entered into an agreement to transfer assets) and realized or realizable (cash payment has been received or collection of payment is reasonably assured).
  • Without the matching principle and the recognition rules, a business would be forced to record revenues and expenses when it received or paid cash.
  • Explain how the timing of expense and revenue recognition affects the financial statements

• Recognition of Revenue at Point of Sale or Delivery

• Accounting Perspectives on Long-Lived Assets

  • If accounting principles allow recognition of an asset, the next issue concerns which items can be included and which items need to be expensed.

• Current Guidelines for Expense Recognition

  • Since most businesses operate using accrual basis accounting, expense recognition is guided by the matching principle.
  • Explain how accrual accounting uses the matching principle for expense recognition

• Impairment Recognition

• Recognition of Revenue After Delivery

  • When a sale of goods transaction carries a high degree of uncertainty regarding collectibility, a company must defer the recognition of revenue.