Revenue recognition

1
Revenue recognition

• General principle
• Revenue should not be recognized until it is
• (1) earned and
• (2) realized or realizable.

2
Revenue recognition

• Revenues are considered to have been earned when
  the entity has substantially accomplished what it
  must do to be entitled to the benefits
  represented by the revenues

3
Revenue recognition

• The two conditions (being realized or realizable
  and being earned) are usually met by the time
  product or merchandise is delivered or services
  are rendered to customers, and revenues from
  manufacturing and selling activities and gains
  and losses from sales of other assets are
  commonly recognized at time of sale (usually
  meaning delivery).

4
Revenue recognition

• Criteria in Staff Accounting Bulletin 101
• Persuasive evidence of an arrangement exists, 
• Delivery has occurred or services have been
  rendered, 
• The seller's price to the buyer is fixed or
  determinable, and
• Collectibility is reasonably assured

5
Revenue recognition

• Is there a signed Purchase Agreement and is
  manufacturing complete to the P.A specifications?
• If not, no sale

6
Revenue recognition

• On sales to dealers for resale where the dealer
  has financed the purchase with recourse
• no sale until product has been resold or the note
  retired.

7
Revenue recognition

• On sales with additional services to be provided
  by seller, no revenue can be recognized until
  additional services have been completed unless
  following conditions are met

8
Revenue recognition

• Separate contracts for product and additional
  services, separated by sufficient number of
  days,
• Customer has accepted and paid for product, and
• Additional services will be complete within 90
  days.

9
Revenue recognition

• Revenue will not be considered realizable until
• Seller has received cash,
• Seller has recorded a short-term receivable and
  collectibility is reasonably assured, or
• Long-term financing is complete.

10
Revenue recognition

• No sale if
• Customer has not agreed to withhold and/or waive
  right of return.
• Seller has additional contractual obligations
  which give a buyer the right to return the
  aircraft.
• Export licenses are required and have not been
  received.

11
Revenue recognition

• If product is still on sellers premises, no
  revenue may be recognized until the customer has
  signed a hold for convenience letter that
• States business purpose of non-delivery
• Establishes a fixed delivery date.

12
Revenue recognition

• No sale until customer has
• Accepted and inspected the product or
• Accepted and waived inspection of the product.

13
Revenue recognition

• Other agreements (side letters) that may delay
  revenue recognition
• Agreements to assist in reselling the product.
• Agreements to assist in obtaining export licenses.