Alternative Revenue Recognition Methods
Revenue Recognition
in the Period of the Sale is used because realization has taken place and revenues
have been earned at the time of the sale. Accrual accounting is used, expenses are
matched against revenues, inventory is recorded at cost, and accounts receivable
are recorded at net realizable value. This method is used most often.
Revenue Recognition
Prior to the Period of the Sale is used to reflect economic substance over legal
form. The percentage completion method of accounting for long-term construction
contracts and the proportional performance method of accounting for long-term service
contracts are examples.
Revenue Recognition
at the Completion of Production is used for certain precious metals and farm products
which may have a fixed market price and unit interchangeability. However, this alternative
is rarely used.
Revenue Recognition
After the Period of the Sale is used when the collectability of receivables is not
reasonably assured or cannot be reliably estimated. The installment method and the
cost recovery method are both used to defer revenue recognition.
Revenue Recognition Delayed Until
a Future Event Occurs is used when there has been insignificant transfer of the
risks and benefits of ownership. The deposit method of accounting is used until
revenue recognition occurs when sufficient risks and benefits have been transferred
to the buyer.
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