SFAC No.8
Conceptual framework of financial reports
SFAC No.4
Financial reporting by nonbusiness organizations
SFAC No.5
Recognition and measurement of financial statements
Replacement cost
Amount that would be paid to replace an asset currently
Net realizable value
Selling price minus any disposal costs
Historical cost
Amount originally paid to acquire an asset
Multi step income statement
Net Sales Minus COGS Equals gross margin Minus operating expenses Equals income or loss from operations Plus other revenue and gains Minus other expenses and losses Plus or minus unusual shit Equals income before taxes Minus income tax expense Equals income from continuing operations Plus or minus discontinued operations net of tax Equals net income
How to account for an incident that is unusual but is a common occurrence
Record the actual gain or loss for the year incurred and if it is common you don’t need a separate disclosure but if it’s not common you need a separate disclosure
5 Step revenue recognition approach
- Identify contract with a customer
- Identify separate performance obligations in the contract
- Determine transaction price
- Allocate transaction price to the separate obligations
- Recognize revenue when obligations are satisfied
Criteria for revenue recognition
- all parties have approved of contract
- rights of each party are identified
- payment terms can be identified
- contract has commercial substance or future cash flows
- probable that entity will collect most of consideration due in the contract
Journal entry to record revenue recognition of multiple performance obligatoins
Dr. Cash
Cr. Obligation 1
Cr. Obligation 2
Cr. Obligation 3
If there is a service like technical support that stretches past installation of some shit how do you account for it?
You initially credit unearned revenue then you allocate each year as you earn the revenue
Output Methods
- Units produced or delivered
- Time elapsed
- Milestones achieved
- Surveys of performance completed to date
- Appraisals of results achieved
Based on how customer or buyer perceived shit
Input Methods
- Cost incurred relative to expected costs
- Resources consumed
- Labor-hours expended
- Time elapsed
based on how the seller or the one performing the services sees shit
Incremental Costs of Obtaining a contract
Costs that were needed to secure the contract are capitalized and amortized while costs like travel and meals are expensed
Costs to fulfill a contract
In order for costs to fulfill a contract to be considered an asset that have to relate directly to the contract, generate resources, and are expected to be recovered, other than that they are expensed like selling & general and administrative costs
What is an agent principle contract
Think of travelocity as an agent and how they find you flights from other companies for commission from the principal like United Airlines
Repurchased agreements
- forward: obligation for seller to repurchase in contract
- Call: seller has right to repurchase the asset
- Put: obligation for seller to repurchase at customers request
Accounting for repurchase agreements
If the repurchase price it less then it is a lease, but if it is more than the selling cost & FV then it is a financing agreement, the amount more paid is recognized as interest expense
Dr. Interest expense
Cr. Financial liability
If the repurchase agreement lapses
Dr. Financial liability
Cr. Revenue
For the amount of the repurchase price
Refund liability journal entries where initial liability on a cash sale of $50,000 where 10% of items purchased
Dr. Cash 50,000
Cr. Revenue 45,000
Cr. Refund liability 5,000
Cash paid to customers for 3,000 returns
Dr. Refund liability
Cr. Cash
Accounting for percentage of completion
- Contract price minus estimated total cost equals gross profit
- % of completion is total cost to date divided by total estimated cost of contract
- Multiply step 1 by step 2 for gross profit earned
- Current year gross profit is profit to date minus previous year profit to date
Accounting for completed contract method
Gross profit or loss equals contract price minus total costs
How to calculate asset or liability for percentage of completion
Actual costs incurred for the year plus gross profit recognized. Find the difference between that and billings & collections
you have to do all the steps
