Essay on Revenue Recognation

985 Words Aug 2nd, 2012 4 Pages
Running head: REVENUE RECOGNITION

Revenue Recognition

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Revenue Recognition
Introduction
In accounting for revenues an accountant must follow GAAPS guidelines on accounting for revenues. Joy fitness is currently faced with a problem of earning low revenue and wants to seek for a business loan. It is an important requirement for any business to submit all their financial transaction to the financial institutions before the loan is rewarded. Therefore, Joy Fitness must prepare the trading profit and loss account together with other necessary documents for financial institution to consider offering the loan. The amount of loan to be given
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The business owner also wants the revenue from the coupons to be recognized. this will be mistake because the coupons are always sold through out the year and also they have an expiry date. Recognizing all these coupons will lead to overstating of profits at the end of the year since the expired coupons must be returned. for instance if there will be expired coupons by the end of the year then the business owner will have to deduct it if he had project the business using all the coupons available. Therefore, the business owner should only recognize those coupons which will expire by the end of the year. Recognizing the revenue realized from the machines that have been sold will lead to overstating of profits. This is because the machines are sold with 30% down payment with the rest repayable in 2 years. for instance if the machine is sold in the first year then the business owner should recognize the 30% down payment and the revenue realized in the first year. Also, recognizing the revenue of the machines is faced with another challenge since, customers can return the machine with a full refund within 90 days. It also provides servicing on this equipment, and historically 6% of the machines sold will have repair services. Therefore, including this revenue will be overstating of profits since in the course of 90 days some machines may be returned

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