Question

Determine the specific citation for accounting for each of the following items. List the citation and the FASB guidance to answer each of the following questions:

1. What are the five key steps to applying the revenue recognition principle?

2. What are indicators that control has passed from the seller to the buyer, such that it is appropriate to recognize revenue at a point in time?

3. Under what circumstances can sellers recognize revenue over time?

Prepare a Word document which includes your answers to the above questions and the supporting FASB citations.

Please be sure to include the exact FASB citation, not just the FASB information.

Answer 1

1. According to Financial Accounting Standard Board, Revenue is the important measure used by the financial investors in assessing the company’s performance. The purpose of the new guidance given by FASB is to report the vital information to the financial statements users about the nature, timings and uncertainty of revenue. The five key steps to applying the revenue recognition principle are:

1. Identifying the contract with the customer
2. Identifying the performance obligations in the contract
3. Determining the price of the transactions
4. Allocating the price to the performance obligations in the contract
5. Recognizing the revenue when reporting entity satisfies the performance obligations

2. The major indicators are used to decide whether control of a good or service has passed from the seller to the buyer are as follows:
1. An obligation to pay the seller.
2. Legal title to the asset.
3. Physical possession of the asset.
4. The risks and rewards of ownership has been transferred to the buyer from seller
5. Acceptance of an asset.

3. Under following circumstances, seller can recognize the revenue over the time:

1. Where the customer consumes the benefit of the seller's work as it is performed,
2. The customer controls the asset as it is created

Citation: http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176163728398