Chapter 6 – Revenue Recognition and Profitability Analysis

The proper timing of income recognition is important to ensuring the fair presentation of a company’s results of operations.  At it’s most basic level, income is recognized at the point of sale or delivery.  However, there are times when the point of sale or delivery may not be appropriate.

The Financial Accounting Standards Board or FASB issued two criteria that must be met before revenue can be recognized:  (1) the earnings process is complete or virtually complete; and (2) there is reasonable certainty as to the collectibility of the asset to be received (usually cash).

The Securities and Exchange Commission (SEC) issued four additional criteria:  (1) persuasive evidence of an arrangement exists; (2) delivery had occurred or services have been performed; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured.

The focus in Chapter 6 is on Revenue Recognition. Revenue Recognition determines when and how much revenue appears in the income statement. The chapter breaks the discussion of revenue recognition down into three different parts. First, the chapter discusses the general approach for recognizing revenue in three situations. Those situations are at a point in time, over a period of time and for contracts that include multiple part that might require recognizing revenue at different times. Next, the discussion shifts to special issues that affect revenue recognition. Finally, the chapter discusses how to account for revenue in long-term contracts.


Textbook readings: Chapter 6 – “Revenue Recognition”, pages 276 – 317


Narrated PowerPoint Lectures: The lecture for this chapter is broken into three parts. Part 1 focuses on the general approach for recognizing revenue in three situations – at a point in time, over a period of time and for contracts that include multiple parts that might require recognizing revenue at different times. Part 2 discusses how to deal with special issues that affect the revenue recognition process. Part 3 focuses on accounting for revenue in long-term contracts.


Narrated Solutions to Suggested End of Chapter Exercises and Problems


Publisher solutions to suggested end of chapter exercises and problems