Assets and Equities Measurement

Standard setters prescribe when a firm can recognize revenue. The general criteria require that the firm have delivered a product or service to the customer, have received cash or a financial asset capable of reasonably precise measurement, and be able to measure with reasonable precision the remaining costs to complete the transaction.

An account receivable that the debtor will not pay. If the firm uses the preferable allowance method, the entry on judging a specific account to be uncollectible debits the allowance for uncollectible accounts and credits the specific account receivable.

Refer to the allowance method for uncollectibles. When the firm uses this procedure, it estimates the debit to Bad Debt Expense or the Revenue Contra account, an amount equal to a specified percentage of sales for the period.

The bundling of financial assets into groups that can become the basis for raising cash. For example, a bank might have loaned to hundreds of customers under home mortgages. It could bundle a defined set of mortgages and offer for sale fractional interests, called securities, in the cash inflows from the pool of mortgages.

A revenue transaction in which the firm delivers goods or services to a customer in return for cash or a contractual obligation to pay.

100 X (1 - cost of goods sold/net sales) = 100 X (gross margin/net sales).

Recognizing revenue and expense (or gross margin) from a sales transaction in proportion to the fraction of the selling price collected during a period; allowed by the IRS for income tax reporting but acceptable in U.S. GAAP only when the firm cannot estimate cash collections with reasonable precision. See realized (and unrealized) gross margin.

When a firm undertakes to construct for a customer, and the construction takes more than a few months, the firm will often contract with the customer to make cash payments as construction proceeds. The firm receives the cash, often called a "progress payment," debiting cash and crediting an account such as Advances from Customers. The customer credits cash and debits an account such as Advances to Suppliers. The firm receiving the cash often refers to these collections as "progress collections." We prefer not to use the word payment to refer to part of a transaction where the firm receives the cash, a collection of a payment made by a counterparty. progressive tax Tax for which the rate increases as the taxed base, such as income, increases. Contrast with regressive tax.

Recognizing revenues and expenses on a job, order, or contract (1) in proportion to the costs incurred for the period divided by total costs expected to be incurred for the job, or order, or contract (cost to cost) or (2) in proportion to engineers' or architects' estimates of the incremental degree of completion of the job, order, or contract during the period. Contrast with completed contract method.

Recognizing revenues and expenses for a job or order only when the firm finishes it, except that when the firm expects a loss on the contract, the firm must recognize all revenues and expenses in the period when the firm first foresees a loss. Accountants generally use this term only for long-term contracts. This method is otherwise equivalent to the sales basis of revenue recognition.