corporate financial reporting
DESCRIPTION
7 – Reporting Revenue & Receivables . CORPORATE FINANCIAL REPORTING. In chapter 4, we condensed the 4 SEC criteria into two criteria: 1. The company has received a measurable asset from the customer and - PowerPoint PPT PresentationTRANSCRIPT
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CORPORATE FINANCIAL REPORTING
7 – Reporting Revenue & Receivables
Revene & Receivables
REVENUE CRITERIA FORACCRUAL BASIS
In chapter 4, we condensed the 4 SEC criteria into two criteria:
1. The company has received a measurable asset from the customer and
2. The revenue is earned - meaning that the company has done what the customer is paying it to do. 2Revenue & Receivables
METHODS USED TO RECOGNIZE REVENUES / EXPENSES
Cash basisAccrual basis
Installment sales methodCost recovery
Percentage completionCompleted contract
3Revenue & Receivables
RACTEE STEREO SALES COMPANY
You are the CFO of Ractee Stereo Sales Company. You sell me a stereo system for $10,000. The system cost you $6,000; you paid for the system this year. I promise to pay you: in 2011: 2,000 in 2012: 3,000 in 2013: 5,000 total 10,000 (plus interest, of course, but
we will ignore that interest)
4Revenue & Receivables
RACTEE CONSTRUCTION COMPANY
Our construction company gets a contract to build a tunnel to Winter Park, Colorado.
The contract price is $18,000; our engineers estimate it will cost us $12,000 over 3 years to build
Results: Year We Collect We Spend 2011 3,000 4,000 2012 5,000 6,000 2013 10,000 2,000
5Revenue & Receivables
RECEIVABLES
Hard core stuff – “revenue adjustments”
bad debtssales returns
sales discounts
6Revenue & Receivables
RECEIVABLES - BAD DEBTS
Primarily two ways to account for bad debts: - the direct write-off method - the “allowance” - percentage of credit sales method
- aging method7Revenue & Receivables
BAD DEBTS - THE DIRECT METHODWhat will appear in F/S?
2011: Sales on account: $100,000 Collect from customers: $80,000
2012: Sales on account: 150,000 Collect from customers: $110,000 Customer owing us $5,000 from 2011 calls and says “Sorry - bye, bye.” 8Revenue & Receivables
BAD DEBTS - THE ALLOWANCE METHOD - What will appear in F/S?
2011: Sales on account: $100,000 Collect from customers: $80,000
2012: Sales on account: 150,000 Collect from customers: $110,000 Customer owing us $5,000 from 2011 calls and says “Sorry - bye, bye.” 9Revenue & Receivables
RECEIVABLES - SALES RETURNSWhat will appear in F/S?
Our company makes sales on account of $100,000 in December 2011. Our past experience is that .2% of sales are returned the next month.
10Revenue & Receivables
ACCELERATING COLLECTIONS OF RECEIVABLES (Monetizing)
FactoringBorrowSecuritize
11Revenue & Receivables
QUESTIONS
?
12Revenue & Receivables