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1、YCF正版可修改PPT(本科）会计专业英语Chapter 6教学课件Chapter6 Revenues and Expenses2Mini Casep ABC Construction Company is building an apartment for XYZ Company;the contract cost is$20,000,000.For the discovery of the geothermal resources,XYZ Company asked ABC Construction Company change their original design;add hot
2、water piping and equipment.XYZ Company adds$500,000 for this change.When the main project reached fifth layers,they found XYZ Company make big mistake on procedure,the construction is ordered to stop.XYZ Company required ABC Construction Company to keep their workers and tools in the scene.After two
3、 months,the construction started again.ABC Construction Company asked XYZ Company to pay for their loss:Crane$50,000per month,small machine$10,000 per month,rental fee of the tube$30,000 per month.After negotiation,XYZ Company agreed to pay$180,000.pIdentify:p1.How should the revenue of this contrac
4、t being recognized?p2.If XYZ Company has some economic problem and cant pay for this construction on time,how to recognize the revenue?Learning ObjectivespExplain what revenue ispOutline the main types of revenuepUnderstand the revenue recognition criteriapDescribe what kinds of expenses may occur i
5、n a companypDefine the difference between period expenses and product costs4Topic 1:Revenuesp DefinitionpRevenues are inflows of assets of a company or settlement of its liabilities during a period from delivering or producing goods,rendering services,or other activities that are the companys ongoin
6、g major or central operations.Revenues：Main revenueSales revenueRevenues of transferring the right of assetsService revenueOther business revenues5The Earning Process of RevenuepExample 6-1:when is revenue recorded in the accounting records?p assume that on May 24,a real estate company signs a contr
7、act to represent a client in selling the clients personal residence.The contract entitles the real estate company to a commission equal to 5%of the selling price,due 30 days after the date of sale.On June 30,the real estate company sells the house at a price of$120,000,thereby earning a$6,000 commis
8、sion($120,0005%),to be received on July 10.When should the company record this$6,000commission revenueIn May,June,or July?6Revenue Recognitionp Revenue is to be recognized only when all of the following criteria have been satisfied:p(1)The entity has transferred the significant risks and rewards of
9、ownership of the goods to the buyer;p(2)The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;p(3)The amount of revenue can be measured reliably;p(4)It is probable that the economic benefits associated w
10、ith the transaction will flow to the entity；p(5)The costs incurred or to be incurred in respect of the transaction can be measured reliably.7Example 6-2 cash received at different timesp(1)cash received at the same period goods/services delivered:pThe newspaper stand sells Macao Daily News to a cust
11、omer who pays$4 cash and takes away the newspaper immediately.pEntries:pCash$4 pRevenue$4 8Example 6-2 cash received at different timesp（2）cash received before goods/services delivered:pOn Jan 1,the Fortune Magazine has received a subscription form and$120 from an IFT student for subscribing 12 issu
12、es of Fortune Magazine($10/issue).The student will receive 1 issue of the magazine on the last day of each month for 12 consecutive months.pEntries:pJan 1(cash received):pCash$120 pUnearned revenue$120 pJan 31(and last day of every month):pUnearned revenue$10 pRevenue$109Example 6-2 cash received at
13、 different timesp(3)cash received after goods/services delivered):pAn old customer filled in the cleaning form and dropped off his jacket for cleaning at Davids Dry Cleaning on June 30,listed price for cleaning such jacket is$30.David cleans the jacket on July 1,but customers do not claim and pay fo
14、r the jacket until August 1.pEntries:pJune 30(Customer requests service):pNo Journal EntrypJuly 1(Service performed):pAccounts Receivable$30 pRevenue$30pAugust 1(Cash Received):pCash$30 pAccounts Receivable$3010Example 6-3 Recognition by percentage-of-completionpConstruction Inc.is engaged in constr
15、ucting a massive bridge in Wonderland.The contract is worth$200 million and the company is expected to complete it in 3 years.In Year 1 the company has incurred an amount of$50 million on the contract and the engineers estimate that in the next 2 years the company is expected to expend$110 million m
16、ore.Based on the physical progress of the project the engineers also estimate that 40%of the work has been carried out.pSolution:pUnder the survey method the engineers have provided their judgment of the percentage of work completed and it is 40%.pBased on costs incurred to date and total costs the
17、percentage of completion comes out to be:pPercentage of work completed=$50 million ($50 million+$110 million)=31.25%.pTotal costs include costs incurred to date and costs expected to be incurred over the remaining period.pBased on the percentage of completion calculated using cost date we determine
18、than revenue of$62.5 million has been earned(31.25%multiplied by$200 million total contract value).On the other hand based on the engineers survey the revenue recognized should be$80 million(40%multiplied by$200 million).11Cost-to-cost methodpThis is a comparison of the contract cost incurred to dat
19、e to the total expected contract cost.The cost of items already purchased for a contract but which have not yet been installed should not be included in the determination of the percentage of completion of a project,unless they were specifically produced for the contract.Also,allocate the cost of eq
20、uipment over the contract period,rather than up-front,unless title to the equipment is being transferred to the customer.12Efforts-expended methodpThis is the proportion of effort expended to date in comparison to the total effort expected to be expended for the contract.For example,the percentage o
21、f completion might be based on direct labor hours,or machine hours,or material quantities.13Units-of-delivery methodpThis is the percentage of units delivered to the buyer to the total number of units to be delivered under the terms of a contract.It should only be used when the contractor produces a
22、 number of units to the specifications of a buyer.14Topic 2:Expensesp DefinitionpExpenses are the costs of the goods and services used up in the process of earning revenue.It represents an outflow of assets as a result of the efforts made to generate revenue.Examples include the cost of employees sa
23、laries,advertising,rent,utilities and the gradual depreciation of such assets as buildings,automobiles and office equipment.All these costs are necessary to attract and service customers and thereby earn revenue.Expenses are often called the“costs of doing business,”that is,the cost of the various a
24、ctivities necessary to carry on a business.15Categories of Expensesp(1)Product costspProduct costs are costs directly related to the products.They are composed of direct material costs,direct labor costs and manufacturing overhead.p(2)period expensespThe other category of expense is the period expen
25、se.Expenses in this category are not directly associated with products,but they are indispensable for generating the current revenue.Such expenses are composed of administrative expense,advertising expense,sales expense,interest expense and so on.These expenses cannot be linked to some specific prod
26、uct,but their occurrence is indispensable for gaining revenues.So they are called period expenses.16Expense RecognitionpExpense recognition is the act of converting an asset into an expense.This is done when the utility of an asset has been consumed.Expense recognition can arise on a delayed basis,w
27、hen expenditures are made for assets that are not immediately consumed.pTiming is an important factor in matching(offsetting)revenue with the related expenses.For example,in preparing monthly income statements,it is important to offset this months expenses against this months revenue.We should not o
28、ffset this months expenses against last months revenue,because there is no cause and effect relationship between the two.17Specific Expense ItemspCost of goods soldpCost of goods sold is the accumulated total of all costs used to create a product or service,which has been sold.These costs fall into
29、the general sub-categories of direct labor,materials,and overhead.In a service business,the cost of goods sold is considered to be the labor,payroll taxes,and benefits of those people who generate billable hours(though the term may be changed to cost of services).In a retail or wholesale business,th
30、e cost of goods sold is likely to be merchandise that was bought from a manufacturer.18Specific Expense ItemspCost of goods soldpThe cost of goods sold can also be impacted by the type of costing methodology used to derive the cost of ending inventory.Consider the impact of the following two invento
31、ry costing methods:pFirst in,first out method.Under this method,known as FIFO,the first unit added to inventory is assumed to be the first one used.Thus,in an inflationary environment where prices are increasing,this tends to result in lower-cost goods being charged to the cost of goods sold.pLast i
32、n,first out method.Under this method,known as LIFO,the last unit added to inventory is assumed to be the first one used.Thus,in an inflationary environment where prices are increasing,this tends to result in higher-cost goods being charged to the cost of goods sold.19Specific Expense ItemspCost of g
33、oods soldpExample 6-4 cost of goods soldpa company has$10,000 of inventory on hand at the beginning of the month,expends$25,000 on various inventory items during the month,and has$8,000 of inventory on hand at the end of the month.What was its cost of goods sold during the month?The answer is:pBegin
34、ning inventory$10,000p+Purchases 25,000p-Ending inventory8,000p=Cost of goods sold$27,00020Specific Expense Itemsp(2)Depreciation ExpensepDepreciation expense is the allocated portion of the cost of a companys fixed assets that is appropriate for the accounting period indicated on the companys incom
35、e statement.For instance,if a company had paid$2,400,000 for its office building(excluding land)and the building has an estimated useful life of 40 years,each monthly income statement will report straight-line depreciation expense of$5,000 for 480 months.However,the allocated cost of the fixed asset
36、s used in manufacturing will be part of the manufacturing overhead which will become part of the cost of the products manufactured.21Specific Expense Itemsp(2)Depreciation ExpensepThe common methods for computing depreciation expense include straight-line,double-declining balance,sum-of-the-years di
37、gits,and units of production or activity:pStraight-line:In straight line depreciation method,cost of a fixed asset is reduced uniformly over the useful life of the asset.Since depreciation expense charged to income statement in each period is the same,the carrying amount of the asset on balance shee
38、t declines in a straight line.pDue to its simplicity,straight line method of depreciation is the most commonly used depreciation method.Accounting principles require companies to depreciate its fixed assets using method that best reflects the pattern in which the assets are being used.While the stra
39、ight-line method is appropriate in many situations,some fixed assets lose more value in initial years.In such situations other depreciation methods are more appropriate.22Specific Expense Itemsp(2)Depreciation ExpensepDouble-declining balance:The double declining balance method is an accelerated for
40、m of depreciation under which the vast majority of the depreciation associated with a fixed asset is recognized during the first few years of its useful life.This approach is reasonable under either of the following two circumstances:pWhen the utility of an asset is being consumed at a more rapid ra
41、te during the early part of its useful life;or when the intent is to recognize more expense now,thereby shifting profit recognition further into the future.pHowever,this method is more difficult to calculate than the more traditional straight-line method of depreciation.Also,most assets are utilized
42、 at a consistent rate over their useful lives,which do not reflect the rapid rate of depreciation resulting from this method.Further,this approach results in the skewing of profitability results into future periods,which makes it more difficult to ascertain the true operational profitability of asse
43、t-intensive businesses.23Specific Expense Itemsp(2)Depreciation ExpensepTo calculate depreciation under the double declining method,multiply the book value at the beginning of the fiscal year by a multiple of the straight-line rate of depreciation.The double declining balance formula is:pDouble-decl
44、ining balance(ceases when the book value=the estimated salvage value)p2 Straight-line depreciation rate Book value at the beginning of the yearpA variation on this method is the 150%declining balance method,which substitutes 1.5 for the 2.0 figure used in the calculation.The 150%method does not resu
45、lt in as rapid a rate of depreciation at the double declining method.24Specific Expense Itemsp(2)Depreciation ExpensepSum-of-the-years digits:Sum of the years digits method of depreciation is one of the accelerated depreciation techniques which are based on the assumption that assets are generally m
46、ore productive when they are new and their productivity decreases as they become old.The formula to calculate depreciation under SYD method is:pSYD Depreciation=pDepreciable Base Remaining Useful LifepSum of the Years DigitspIn the above formula,depreciable base is the difference between cost and sa
47、lvage value of the asset and sum of the years digits is the sum of the series:p1,2,3.N;where n is the useful life of the asset in years.pSum of the years digits can be calculated more conveniently using the following formula:pSum of the Years Digits=N(N+1)p2pSum of the years digits method can also b
48、e applied on monthly basis,in which case the above formula to calculate the sum of the years digits becomes much useful.25Specific Expense Itemsp(2)Depreciation ExpensepUnit of activity(production):The unit of activity depreciation is one of several methods of depreciation.The unit of activity metho
49、d of depreciation is unique in that a plant assets useful life is expressed in the total units that are expected to be produced or the assets total activity during its life.The assets cost is then allocated to the accounting periods based on the plant assets usage,units produced,activity,etc.Years a
50、nd partial years are not relevant when using this depreciation method.(The other methods of depreciation express the plant assets useful life in years and will allocate the plant assets cost based on the mere passage of those years.Under these methods partial years are relevant.)26Specific Expense I