Revenue Recognition Case
It has been noted that “the $25 Referral Credit represents the fair value of the cost Runway would pay to acquire a new customer from an unrelated third party or marketing firm who is not a purchaser of its products.” This is a type of cost experienced by the Runaway Discount to market its products, which must be treated as a marketing cost or expense. The best relevant accounting treatment would be to treat it as a marketing expense rather than a reduction in revenue because it is only realized when a new customer makes a purchase. Part 2
According to Financial Accounting Standards Board (2008), revenue recognition principle is the foundation stone of accrual accounting in line with the matching principle. Revenue recognition and matching principles help establish the accounting period where expenses and revenues are realized. In accordance with the principle, revenues are realized when they are recognizable or recognized and are received or earned. Normally, revenues are recognized when services are provided or goods change ownership regardless of the time when the cash is actually received. Runaway Discount will record the $25 Referral Credit when a new customer referred by an existing customer makes the purchase. Part 3
International Financial reporting Standards offers five procedures for recognizing the special scenario for revenue recognition on the sale of goods. First, is when the risks and benefits have been passed from the person selling to the person buying the good. Secondly, revenue is
REVENUE RECOGNITION CASE
recognized when the seller does not have control over the products that have been sold. These two criteria are related to performance. Thirdly, is when the receipt of payment is rationally guaranteed. This criterion is based on collectability. Fourthly, revenue is recognized when the quantity of the revenue can be rationally determined and lastly when the expense involved in earning the revenue...
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