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Revenue usually is recognized at the point of sale. Under special circumstances, however, bases other than the point of sale are used for the timing of revenue recognition. Required 1. Why is the...

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Revenue usually is recognized at the point of sale. Under special circumstances, however, bases other than the point of sale are used for the timing of revenue recognition.
Required
1. Why is the point of sale usually used as the basis for the timing of revenue recognition?
2. Disregarding the special circumstances when bases other than the point of sale are used, discuss the merits of each of the following objections to the sales basis of revenue recognition:
a. It is too conservative because revenue is earned throughout the entire process of production.
b. It is not conservative enough because accounts receivable do not represent disposable funds; sales returns and allowances may be made; and collection and bad debt expenses may be incurred in a later period.
3. Revenue may also be recognized
(a) During production and
(b) When cash is received. For each of these two bases of timing revenue recognition, give an example of the circumstances in which it is properly used and discuss the accounting merits of its use in lieu of the sales basis.
Answered Same Day Dec 24, 2021

Solution

Robert answered on Dec 24 2021
117 Votes
Revenue usually is recognized at the point of sale. Under special
circumstances, however, bases other than the point of sale are used for
the timing of revenue recognition.
Required
1. Why is the point of sale usually used as the basis for the timing of
evenue recognition?
The point of sale is the most widely used basis because it provides an
evidence for transfer of goods to the buyer .In the case of sale to outsiders the
asis other than point of sales basis is used. Therefore in case of sales to
outsiders, the point at which revenue should be recognized is the point when
uncertainty in the performance obligation is resolved.
2. Disregarding the special circumstances when bases other than the point of
sale are used, discuss the merits of each of the following objections to
the sales basis of revenue recognition:
a. It is too conservative because revenue is earned throughout the entire
process of production.
Although revenue is generated in the whole process of production yet it is not
feasible to measure as suitable criteria for...
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