7 – Reporting Revenue & Receivables CORPORATE FINANCIAL REPORTING

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Presentation transcript:

7 – Reporting Revenue & Receivables CORPORATE FINANCIAL REPORTING Revene & Receivables

REVENUE CRITERIA FOR ACCRUAL 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. Revenue & Receivables

METHODS USED TO RECOGNIZE REVENUES / EXPENSES Cash basis Accrual basis Installment sales method Cost recovery Percentage completion Completed contract Revenue & 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) Revenue & 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 Revenue & Receivables

RECEIVABLES Hard core stuff – “revenue adjustments” bad debts sales returns sales discounts Revenue & 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 method Revenue & Receivables

BAD DEBTS - THE DIRECT 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.” Revenue & 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.” Revenue & Receivables

RECEIVABLES - SALES RETURNS What 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. Revenue & Receivables

ACCELERATING COLLECTIONS OF RECEIVABLES (Monetizing) Factoring Borrow Securitize Revenue & Receivables

QUESTIONS ? Revenue & Receivables