Revenue Recognition: Fundamental Principles (Portfolio 5100)
This Portfolio analyzes the general and “fundamental” principles of revenue recognition. The Portfolio surveys the concept of revenue recognition, the relevant accounting literature, and the methodology of researching a revenue recognition issue.
Portfolio 5100-2nd, Revenue Recognition: Fundamental Principles (Accounting Policy and Practice Series), represents the first of a series of Portfolios on revenue recognition. This Portfolio analyzes general principles governing revenue recognition. A number of revenue recognition principles apply to all types of transactions, whether they involve products or services and whether they are completed in one step or involve a long-term contract. This Portfolio refers to these principles as “fundamental principles.”
The Portfolio surveys the concept of revenue recognition, the relevant accounting literature, and the methodology of researching a revenue recognition issue. The Portfolio discusses in detail the four basic recognition criteria – persuasive evidence of an arrangement; delivery of goods or performance of services; fixed or determinable sales price; and reasonably assured collectibility. The Portfolio also discusses accounting for nonmonetary transactions; reporting revenue gross v. net; measuring revenue when the consideration is stock; determining whether certain amounts collected by a vendor should be included in revenue; determining whether certain types of discounts or sales incentives should be recorded as a reduction in revenue; and principles related to financial statement disclosure.
In addition, the Portfolio analyzes multiple-element arrangements. Transactions involving multiple elements must be analyzed to identify the deliverables (if any) that must be examined separately with respect to revenue recognition. This Portfolio analyzes when a transaction is considered a multiple-element arrangement; how to determine the separate units of accounting within a multiple-element arrangement; and how to allocate the total arrangement consideration among the units of accounting.
This Portfolio may be cited as Tax Portfolio 5100-2nd, Starczewski, Mallek, and Beil, Revenue Recognition: Fundamental Principles (Accounting Policy and Practice Series). Within the Accounting Policy and Practice Portfolio Series, however, references to the Portfolios will include only the Portfolio numbers and titles.
Note: Various FASB documents, copyright by the Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116, U.S.A., are reprinted with permission.
Table of Contents
II. Fundamental Principles of Revenue Recognition
III. EITF Issue 00-21, “Revenue Arrangements with Multiple Deliverables”
IV. Financial Disclosures and Income Statement Presentation
Buchanan Ingersoll & Rooney PC
Professor of Accounting
University of Minnesota