Question

1.) What are some conditions that a company would recognize revenue over a period of time?

2.) Why are companies required to recognize some revenue over a period of time?

3.) Looking at the principle and process, what are some areas that you think a company could make some errors in recognizing revenue?

Answer 1

1) If one of following condition satisfies, company needs to record revenue over period of time -

1. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs.
2. The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced.
3. The entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date.

1. If any one of the above criteria are met, the performance obligation is considered to be satisfied over a period of time, thats why we measure some revenue over a period of time.
2. The Company can commit errors relating to revenue, cost of revenue, inventory and accounts receivable, which can result in the overstatement of revenue and expenses for the Restated Periods as well as corresponding balance sheet accounts.

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