Revenue Recognition: Long-Term Projects
For long-term projects, companies have some flexibility with respect to revenue recognition:
Percentage of completion method. Revenues are recognized on the basis of the percentage of total work completed during the accounting period.
Completed contract method. Rarely used in the United States and prohibited by the International Financial Reporting Standards (IFRS), this method allows revenue recognition only once the entire project has been completed.
Basic Principles Revisited: Accrual Basis of Accounting and Revenue RecognitionRecall that the accrual basis of accounting dictates that revenues must be recorded only when they are earned and measurable. According to the revenue recognition principle, a company cannot record revenue until it is earned—that is, until that order is shipped to a customer and collection from that customer, who used a credit card, is reasonably assured. |
2. Boeing
Exercise
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