Essay - Recognition Position Paper Introduction This Paper Provides Guidance for Revenue...

Recognition Position Paper

Introduction

This paper provides guidance for revenue and expense recognition methods, both standard and percentage of completion criteria. It also discusses the pros and cons of expensing stock options.

It concludes with recommendations for a manufacturing company to carry out given this information.

Revenue and Expense Recognition Methods

***** Staff Accounting Bulletin No. 101 (SAB 101) - Revenue ***** in Financial Statements summarizes views in apply*****g generally accepted accounting principles (GAAP) to ***** recognition in financial statements (Turner, 2001). ***** 101 is based on four principles established in *****. Those principles state that revenue generally is realized or realizable and earned when all of the following criteria are met:

1. Persuasive evidence of an arrangement exists, 2. Delivery has occurred or services have been rendered, 3. The seller's price to the buyer is fixed or determinable, and, 4. Collectibility ***** reasonably assured.

********** conditions reflect ***** simple idea ***** revenue on a sale should not be recognized until the seller has fulfilled its obligations to ***** buyer under the ***** arrangement. Expenses are recognized in ***** same period ***** which the benefits derived from those costs are recognized; this is referred to as ***** matching principle (Adjusting the accounts). Thus, recognition of *****s is dictated by revenue recognition, so *****sociations between revenues ***** costs must be *****.

The revenue recognition and matching principles mentioned above are used under the accrual basis of accounting (Adjusting the *****). Under cash*****basis *****, ***** is recorded only when cash ***** received, and expenses are recorded ***** when paid. However, GAAP requires accrual basis accounting because the cash basis often causes misleading financial statements. With accrual basis, revenue ***** be recognized in the accounting period in which it is earned, not just when money is exchanged. In a service bus*****ess, ***** is e*****rned at the time the service ***** performed as discussed below.

***** from the rendering of *****s can be recognized by reference to the stage of completion of ***** transaction when the following cond*****ions are met (Service and construction contract revenue, **********):

1. The amount of revenue can be measured reliably

2. The flow of economic benefits to the entity is probable

3. The stage of completion at the period end ***** be measured reliably

4. ***** costs incurred to d*****e ***** the costs ***** completion can be measured reliably

Management should delay the recognition ***** revenue until ***** above ***** are *****. Revenue might therefore be ***** in certain instances after all conditions of the service or construction contract have been fulfilled, even when the ***** spans more than one ***** *****.

***** straight line basis of revenue recognition should only be ***** for service revenues when ***** ***** is provided by an indeterminate number of acts over a specified time period ********** when there is no other method available that provides a better measure of the stage of completion (Service and construction contract revenue, 2002). Instead, ***** should be recognized according to ***** stage, or ***** of completion