Understanding Revenue Recognition: Principles, Steps, and

School: Mesa Community College - Course: ACC 219 - Subject: Accounting

Revenue Recognition Core Principle:Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods and services When:upontransferto customers How much:amount the seller isentitled to receive It is important not only to determinehow muchrevenue to recognize (record), but alsowhento recognize it.
Five Steps to Recognizing Revenue 1. Identify the contract Legal rights of seller and customer established 2. Identify the performance obligation(s) A performance obligationis a promise to transfer a good or service that is distinct, which is the case if the good or service is both: (a) capable of being distinct and (b) separately identifiable. - Single - Multiple ( a right of return is not a performance obligation but instead a variable consideration that will reduce the revenue at the point of sale).

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