Case 04-7 Lighthouse

* Full revenue recognition method would recognize total revenue and total cost at the date of sale. Adjustments will be recognized when the warranty is used in the contract period, giving by the FASB’s Statement of Financial Accounting Concept No. 5, “Recognition and Measurement in Financial Statements of Business Enterprises”. When revenue is recognized and at the end of initial

Revenue income is income generated by sales of goods or service done by a business for instance sale of goods to customers, rent received from debtors, commission received etc. Revenue income is money that comes into the business from performing its day by day

Revenues are recognized in a net basis and only commissions they retain from each sale are reflected under the company’s financial statements.

According to ASC 410-20-25-10, instances may occur in which insufficient information to estimate the fair value of an asset retirement obligation is available. For example, if an asset has an indeterminate useful life, sufficient information to estimate a range of potential settlement dates for the obligation might not be available. In such cases, the liability would be initially recognized in the period in which sufficient information exists to estimate a range of

The Lighthouse Company is dedicated to offer services to marine or shipping companies. Their services are based on the tracking and location of the boats of their clients. In order to offer the service, Lighthouse must install an equipment of tracking boats which will have a cost of sale of $10.000,00 dollars, no reimbursable and a tracking system with a monthly cost of sale of $300,00 dollars. This way their clients will continuously receive the data on the location and routes of their boats. The clients must accept this service by means of two contracts. One that stipulates the purchase of the tracking equipment and other that stipulates the monthly fee by the tracking service, usually with

Revenue is the gross inflow of economic benefits during the period arising in the ordinary course of activities. Revenue should be recognized when the future economic benefits that will flow to the entity can be measured reliably. The new standard will significantly change how companies recognize revenue. It creates a whole new codification in a new era of revenue recognition by replacing hundreds of pages of guidance that are specific for each industry to a single comprehensive standard applicable to virtually all industries. The recognition criteria are usually applied separately to each transaction, but sometimes and under specific circumstances, it is necessary to apply the recognition criteria to the separate recognizable parts or of a single transaction in order to reflect the substance of the transaction. In aviation industry, the revenue transaction or events takes a significant period of time in order to complete because of the nature of product delivering against the sum of money. The five‐step revenue recognition process for this transaction are as follows:

The source of revenue comes from net income, which comes from a sale of goods or services in

2. On the basis of the response to Question 1, discuss the revenue recognition accounting literature

Reports revenues and expenses for a specific period of time. A firm's revenues, gains, expenses and losses are listed on the income statement. Revenue is money earned from a company’s

example of revenue: “We recognise revenue when it is realised. By naming it ‘revenue’, it

According to Kimmel, Kieso and Waygandt (2011), "the revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned." Basically, this means that revenues should be recognized (or in other words recorded) on completion of the process of revenue generation i.e. once revenue has been earned. This is as per the accrual basis of accounting. Essentially, revenue recognition derives its significance from its utilization when it comes to the determination of the specific accounting period in which earnings should be recorded.

b. Describe what it means for a business to "recognize" revenues. What specific accounts and financial statements are

Timing of revenue recognition is a crucial part in revenue recognition. According to US GAAP, revenue should be recognized when it is realized/realizable and earned (FASB, 1984, Para. 83).

Revenue from the provision of goods and all services is only recognized when the amounts to be recognized are fixed or determinable, and collectability is reasonably assured (Elliot B., Elliot J., 2007)

The revenue recognition principle is a foundation of accrual accounting and one of the main principles of GAAP. The revenue recognition principle is a set of guidelines that helps accountants to identify when a revenue event has taken place and how to appropriately record cash exchanges before, during, and after the revenue event. According to the revenue recognition principal, revenue must (1) be realized or realizable and (2) earned, in order to be recognized. According to the SEC revenue is realized when (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) Collectability is reasonably assured. It is essential