Test Review

321 WordsFeb 14, 20122 Pages
Topics for review for Exam 3 Chapter 10 • GAAP rules for revenue recognition- 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 4) Collectibility is reasonably assured. • Fraud risks related to revenue recognition (bill and hold sales, channel stuffing, lapping, etc.) 1) Side agreements- arrangements used to alter terms & conditions of recoreded sales in order to entice cust. to accept delivery of goods & services 2) Channel Stuffing- (or trade loading) mrkt practice some suppliers use to boost sales by inducing distrib. To buy substantial more inventory than they can promptly resell. 3) Related-party transactions- difficult to identify. Pose “substance over form” issues. 4) Bill and Hold Sales- sales where cust. agrees to buy goods but seller retains physical possession until cust. requests shipment. Such arrangement does not qualify as a sale bevause delivery has not occurred. • Types of transactions and affected accounts in revenue process • Sales ( AR, unearned cash, rendering of service for cash or credit) • Receipt of Cash- from cust. in payment for goods or service • Returns • Revenue documents (sales order, credit approval, open-order report, bill of lading, invoice, statement, etc.) o Order- detail of type & qty of prod. or service. ordered o Credit Approval- procedure for investigating creditworthiness of cust. result documented on credit approval form. o Open-Order Report- report of all cust orders in which processing has not been completed o *Bill of Lading- (Shipping Document)- contains info on qty , type of prod. shipped o Sales Invoice- bill customers o Statements- usually mailed monthly. Sales, cash receipt, credit memo. o A/R aged- weekly/monthly summary of cust balances. 30 days (31-60, 90 days) o Cash

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