Professional Documents
Culture Documents
Chapter 18 Revenue Recognition
Chapter 18 Revenue Recognition
LEARNING OBJECTIVES
2. Problems in recognition
a. Sales with buyback
b. Right of return
c. Trade loading
(1) Attempts to show sales, profits and market share an entity does not have
(2) Induces wholesale customers to buy more product than they can sell
d. Channel stuffing
(1) Undesirable managerial and marketing policy decisions
(2) Actions that distort operating results.
(3) found in computer software industry
(4) Deep discounts offered to distributors to overbuy and records revenue when software leaves the
dock.
(5) distributors’ inventories become “bloated”
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marketing channel gets stuffed but financial statements are improved
2. Completed-contract method.
a. Recognize revenue, cost of goods sold, and gross profit when the
contract is completed.
Use only when using the percentage of completion method is inappropriate
Journal Entries:
(1)Costs of Construction: Construction in Process
Materials/Cash/Payables
(2)Progress Billings: Accounts Receivable
Billings on Construction in Process
(3)Collections: Cash
Accounts Receivable
(4)Revenue/Gross Profit: No Entry
Example:
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