本科會計(jì)專業(yè)英語Chapter 6教學(xué)課件

1、YCF正版可修改PPT(本科）會計(jì)專業(yè)英語Chapter 6教學(xué)課件Chapter6 Revenues and Expenses2Mini Case 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

2、hot 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.

3、After two 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.Identify:1. How should the reve

4、nue of this contract being recognized?2. If XYZ Company has some economic problem and cant pay for this construction on time, how to recognize the revenue?Learning ObjectivesExplain what revenue isOutline the main types of revenueUnderstand the revenue recognition criteriaDescribe what kinds of expe

5、nses may occur in a companyDefine the difference between period expenses and product costs4Topic 1: Revenues DefinitionRevenues 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

6、 companys ongoing major or central operations.Revenues：Main revenueSales revenueRevenues of transferring the right of assetsService revenueOther business revenues5The Earning Process of RevenueExample 6-1:when is revenue recorded in the accounting records? assume that on May 24, a real estate compan

7、y signs a contract 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 e

8、arning a $6,000 commission ($120,0005%),to be received on July 10. When should the company record this $6,000commission revenueIn May, June, or July?6Revenue Recognition Revenue is to be recognized only when all of the following criteria have been satisfied:(1)The entity has transferred the signific

9、ant risks and rewards of ownership of the goods to the buyer;(2)The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;(3)The amount of revenue can be measured reliably;(4)It is probable that the economic

10、 benefits associated with the transaction will flow to the entity；(5)The costs incurred or to be incurred in respect of the transaction can be measured reliably.7Example 6-2 cash received at different times(1) cash received at the same period goods/services delivered:The newspaper stand sells Macao

11、Daily News to a customer who pays $4 cash and takes away the newspaper immediately. Entries: Cash$4 Revenue$4 8Example 6-2 cash received at different times（2）cash received before goods/services delivered:On Jan 1, the Fortune Magazine has received a subscription form and $120 from an IFT student for

12、 subscribing 12 issues 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.Entries: Jan 1 (cash received): Cash$120 Unearned revenue$120 Jan 31 (and last day of every month): Unearned revenue$10 Revenue $109Example

13、 6-2 cash received at different times(3)cash received after goods/services delivered):An 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

14、do not claim and pay for the jacket until August 1.Entries: June 30 (Customer requests service): No Journal EntryJuly 1 (Service performed): Accounts Receivable$30 Revenue$30August 1 (Cash Received):Cash$30 Accounts Receivable $3010Example 6-3 Recognition by percentage-of-completionConstruction Inc.

15、 is engaged in constructing 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 expecte

16、d to expend $110 million more. Based on the physical progress of the project the engineers also estimate that 40% of the work has been carried out.Solution:Under the survey method the engineers have provided their judgment of the percentage of work completed and it is 40%.Based on costs incurred to

17、date and total costs the percentage of completion comes out to be:Percentage of work completed = $50 million ($50 million + $110 million) = 31.25%.Total costs include costs incurred to date and costs expected to be incurred over the remaining period.Based on the percentage of completion calculated u

18、sing cost date we determine 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 methodThis is a comparison

19、 of the contract cost incurred to date 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 th

20、e contract. Also, allocate the cost of equipment over the contract period, rather than up-front, unless title to the equipment is being transferred to the customer.12Efforts-expended methodThis is the proportion of effort expended to date in comparison to the total effort expected to be expended for

21、 the contract. For example, the percentage of completion might be based on direct labor hours, or machine hours, or material quantities.13Units-of-delivery methodThis 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 shou

22、ld only be used when the contractor produces a number of units to the specifications of a buyer. 14Topic 2: Expenses DefinitionExpenses 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 re

23、venue. Examples include the cost of employees salaries, 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 “cos

24、ts of doing business,” that is, the cost of the various activities necessary to carry on a business.15Categories of Expenses(1) Product costsProduct costs are costs directly related to the products. They are composed of direct material costs, direct labor costs and manufacturing overhead.(2) period

25、expensesThe other category of expense is the period expense. 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

26、and so on. These expenses cannot be linked to some specific product, but their occurrence is indispensable for gaining revenues. So they are called period expenses.16Expense RecognitionExpense recognition is the act of converting an asset into an expense. This is done when the utility of an asset ha

27、s been consumed. Expense recognition can arise on a delayed basis, when expenditures are made for assets that are not immediately consumed.Timing is an important factor in matching (offsetting) revenue with the related expenses. For example, in preparing monthly income statements, it is important to

28、 offset this months expenses against this months revenue. We should not offset this months expenses against last months revenue, because there is no cause and effect relationship between the two.17Specific Expense ItemsCost of goods soldCost of goods sold is the accumulated total of all costs used t

29、o create a product or service, which has been sold. These costs fall into 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

30、the term may be changed to cost of services). In a retail or wholesale business, the cost of goods sold is likely to be merchandise that was bought from a manufacturer.18Specific Expense ItemsCost of goods soldThe cost of goods sold can also be impacted by the type of costing methodology used to der

31、ive the cost of ending inventory. Consider the impact of the following two inventory costing methods:First 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,

32、this tends to result in lower-cost goods being charged to the cost of goods sold.Last in, 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 i

33、n higher-cost goods being charged to the cost of goods sold.19Specific Expense ItemsCost of goods soldExample 6-4 cost of goods solda 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 ha

34、nd at the end of the month. What was its cost of goods sold during the month? The answer is:Beginning inventory$10,000+ Purchases25,000- Ending inventory8,000= Cost of goods sold$27,00020Specific Expense Items(2)Depreciation ExpenseDepreciation expense is the allocated portion of the cost of a compa

35、nys fixed assets that is appropriate for the accounting period indicated on the companys income 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 stra

36、ight-line depreciation expense of $5,000 for 480 months. However, the allocated cost of the fixed assets used in manufacturing will be part of the manufacturing overhead which will become part of the cost of the products manufactured.21Specific Expense Items(2)Depreciation ExpenseThe common methods

37、for computing depreciation expense include straight-line, double-declining balance, sum-of-the-years digits, and units of production or activity:Straight-line: In straight line depreciation method, cost of a fixed asset is reduced uniformly over the useful life of the asset. Since depreciation expen

38、se charged to income statement in each period is the same, the carrying amount of the asset on balance sheet declines in a straight line.Due to its simplicity, straight line method of depreciation is the most commonly used depreciation method. Accounting principles require companies to depreciate it

39、s fixed assets using method that best reflects the pattern in which the assets are being used. While the straight-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 I

40、tems(2)Depreciation ExpenseDouble-declining balance: The double declining balance method is an accelerated form 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 und

41、er either of the following two circumstances:When the utility of an asset is being consumed at a more rapid rate 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.However, this method is more dif

42、ficult to calculate than the more traditional straight-line method of depreciation. Also, most assets are utilized 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 profitabil

43、ity results into future periods, which makes it more difficult to ascertain the true operational profitability of asset-intensive businesses.23Specific Expense Items(2)Depreciation ExpenseTo calculate depreciation under the double declining method, multiply the book value at the beginning of the fis

44、cal year by a multiple of the straight-line rate of depreciation. The double declining balance formula is:Double-declining balance (ceases when the book value = the estimated salvage value)2 Straight-line depreciation rate Book value at the beginning of the yearA variation on this method is the 150%

45、 declining balance method, which substitutes 1.5 for the 2.0 figure used in the calculation. The 150% method does not result in as rapid a rate of depreciation at the double declining method.24Specific Expense Items(2)Depreciation ExpenseSum-of-the-years digits: Sum of the years digits method of dep

46、reciation is one of the accelerated depreciation techniques which are based on the assumption that assets are generally more productive when they are new and their productivity decreases as they become old. The formula to calculate depreciation under SYD method is:SYD Depreciation =Depreciable Base Remaining Useful LifeSum of the Years DigitsIn the