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Flashcard 1465008393484

Tags
#r1-read #sqr4 #study-methods
Question
How should you read in the 1st R?
Answer
not passively sliding your eyes over the words, but actively engaging the text,

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Then read; not passively sliding your eyes over the words, but actively engaging the text, trying to find the answer to your question. Be cautious, however, that you don't end up skimming for the answer to your question and missing other important information.</

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Flashcard 1479939329292

Tags
#cfa-level-1 #reading-25-understanding-income-statement #revenue-recognition
Question
Which method of revenue recognition is required for long-term contracts when the outcome can be measured reliably under both IFRS and US GAAP?
Answer
percentage-of-completion

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Because of better matching with the periods in which work is performed, the percentage-of-completion method is the preferred method of revenue recognition for long-term contracts and is required when the outcome can be measured reliably under both IFRS and US GAAP.

Original toplevel document

3.2.1. Long-Term Contracts
imates and is thus not as objective as the completed contract method. However, an advantage of the percentage-of-completion method is that it results in better matching of revenue recognition with the accounting period in which it was earned. <span>Because of better matching with the periods in which work is performed, the percentage-of-completion method is the preferred method of revenue recognition for long-term contracts and is required when the outcome can be measured reliably under both IFRS and US GAAP. Under both IFRS and US GAAP, if a loss is expected on the contract, the loss is reported immediately, not upon completion of the contract, regardless of the method used (e.g., percentag







Flashcard 1479993855244

Tags
#cfa-level-1 #reading-25-understanding-income-statement #revenue-recognition
Question
Under US GAAP, when the seller has completed the [...] in the [...] and is either assured of collecting the selling price, a sale of real estate is reported at the time of sale using the normal revenue recognition conditions.
Answer
significant activities

earnings process

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Under US GAAP, when the seller has completed the significant activities in the earnings process and is either assured of collecting the selling price or able to estimate amounts that will not be collected, a sale of real estate is reported at the time of sale using the normal reve

Original toplevel document

3.2.2. Installment Sales
for some installment sales. An example of such deferral arises for certain sales of real estate on an installment basis. Revenue recognition for sales of real estate varies depending on specific aspects of the sale transaction.19 <span>Under US GAAP, when the seller has completed the significant activities in the earnings process and is either assured of collecting the selling price or able to estimate amounts that will not be collected, a sale of real estate is reported at the time of sale using the normal revenue recognition conditions.20 When those two conditions are not fully met, under US GAAP some of the profit is deferred. Two of the methods may be appropriate in these limited circumstances and relate to the amou







Flashcard 1479998573836

Tags
#cfa-level-1 #installment-sales #reading-25-understanding-income-statement #revenue-recognition
Question
Under the [...] method, the portion of the total profit of the installment sales that is recognized in each period is determined by the percentage of the total sales price for which the seller has received cash.
Answer
installment

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3.2.2. Installment Sales
some of the profit is deferred. Two of the methods may be appropriate in these limited circumstances and relate to the amount of profit to be recognized each year from the transaction: the installment method and the cost recovery method . <span>Under the installment method, the portion of the total profit of the sale that is recognized in each period is determined by the percentage of the total sales price for which the seller has received cash. Under the cost recovery method, the seller does not report any profit until the cash amounts paid by the buyer—including principal and interest on any financing from the seller—are grea







Flashcard 1480000933132

Tags
#cfa-level-1 #reading-25-understanding-income-statement #revenue-recognition
Question
Under the [...] method, the seller does not report any profit until the cash amounts paid by the buyer are greater than all the seller’s costs of the property.
Answer
cost recovery method

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3.2.2. Installment Sales
thod and the cost recovery method . Under the installment method, the portion of the total profit of the sale that is recognized in each period is determined by the percentage of the total sales price for which the seller has received cash. <span>Under the cost recovery method, the seller does not report any profit until the cash amounts paid by the buyer—including principal and interest on any financing from the seller—are greater than all the seller’s costs of the property. Note that the cost recovery method is similar to the revenue recognition method under international standards, described above, when the outcome of a contract cannot be measured reliabl







Flashcard 1480003292428

Tags
#cfa-level-1 #reading-25-understanding-income-statement #revenue-recognition
Question
The [...] is similar to the revenue recognition method under IFRS, when the outcome of a contract cannot be measured reliably.
Answer
cost recovery method

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3.2.2. Installment Sales
ed cash. Under the cost recovery method, the seller does not report any profit until the cash amounts paid by the buyer—including principal and interest on any financing from the seller—are greater than all the seller’s costs of the property. <span>Note that the cost recovery method is similar to the revenue recognition method under international standards, described above, when the outcome of a contract cannot be measured reliably (although the term cost recovery method is not used in the international standard). Example 4 illustrates the differences between the installment method and the cost recovery method. Installment sales and cost recovery treatment of revenue recognition are







Article 1480254688524

3.2.3. Barter
#reading-25-understanding-income-statement #revenue-recognition

Revenue recognition issues related to barter transactions became particularly important as e-commerce developed. As an example, if Company A exchanges advertising space for computer equipment from Company B but no cash changes hands, can Company A and B both report revenue? Such an exchange is referred to as a “barter transaction.” An even more challenging revenue recognition issue evolved from a specific type of barter transaction, a round-trip transaction. As an example, if Company A sells advertising services (or energy contracts, or commodities) to Company B and almost simultaneously buys an almost identical product from Company B, can Company A report revenue at the fair value of the product sold? Because the company’s revenue would be approximately equal to its expense, the net effect of the transaction would have no impact on net income or cash flow. However, the amount of revenue reported would be higher, and the amount of revenue can be important to a company’s valuation. In the earlier s



#reading-25-understanding-income-statement #revenue-recognition
Revenue recognition issues related to barter transactions became particularly important as e-commerce developed.
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3.2.3. Barter
Revenue recognition issues related to barter transactions became particularly important as e-commerce developed. As an example, if Company A exchanges advertising space for computer equipment from Company B but no cash changes hands, can Company A and B both report revenue? Such an exchange is ref




Flashcard 1480257047820

Tags
#reading-25-understanding-income-statement #revenue-recognition
Question
Revenue recognition issues related to barter transactions became particularly important as [...].
Answer
e-commerce developed

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Revenue recognition issues related to barter transactions became particularly important as e-commerce developed.

Original toplevel document

3.2.3. Barter
Revenue recognition issues related to barter transactions became particularly important as e-commerce developed. As an example, if Company A exchanges advertising space for computer equipment from Company B but no cash changes hands, can Company A and B both report revenue? Such an exchange is ref







Flashcard 1480258620684

Tags
#reading-25-understanding-income-statement #revenue-recognition
Question
if Company A exchanges advertising space for computer equipment from Company B but no cash changes hands, can Company A and B both report revenue? Such an exchange is referred to as a [...]
Answer
“barter transaction.

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3.2.3. Barter
Revenue recognition issues related to barter transactions became particularly important as e-commerce developed. As an example, if Company A exchanges advertising space for computer equipment from Company B but no cash changes hands, can Company A and B both report revenue? Such an exchange is referred to as a “barter transaction.” An even more challenging revenue recognition issue evolved from a specific type of barter transaction, a round-trip transaction. As an example, if Company A sells advertis







Flashcard 1480260979980

Tags
#reading-25-understanding-income-statement #revenue-recognition
Question
An even more challenging revenue recognition issue evolved from a specific type of barter transaction, a [...] .
Answer
round-trip transaction

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3.2.3. Barter
veloped. As an example, if Company A exchanges advertising space for computer equipment from Company B but no cash changes hands, can Company A and B both report revenue? Such an exchange is referred to as a “barter transaction.” <span>An even more challenging revenue recognition issue evolved from a specific type of barter transaction, a round-trip transaction. As an example, if Company A sells advertising services (or energy contracts, or commodities) to Company B and almost simultaneously buys an almost identical product from Company B, can







Flashcard 1480263339276

Tags
#reading-25-understanding-income-statement #revenue-recognition
Question
if Company A sells advertising services (or energy contracts, or commodities) to Company B and almost simultaneously buys an almost identical product from Company B, can Company A report revenue at the fair value of the product sold?

How is this called?
Answer
Round trip transaction

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3.2.3. Barter
and B both report revenue? Such an exchange is referred to as a “barter transaction.” An even more challenging revenue recognition issue evolved from a specific type of barter transaction, a round-trip transaction. As an example, <span>if Company A sells advertising services (or energy contracts, or commodities) to Company B and almost simultaneously buys an almost identical product from Company B, can Company A report revenue at the fair value of the product sold? Because the company’s revenue would be approximately equal to its expense, the net effect of the transaction would have no impact on net income or cash flow. However, the amount of reve







Flashcard 1480265698572

Tags
#reading-25-understanding-income-statement #revenue-recognition
Question
In a round - trip transaction, since the company’s revenue would be approximately equal to its expense, the net effect of the transaction would have no impact on [...] or [...]
Answer
net income or cash flow.

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3.2.3. Barter
example, if Company A sells advertising services (or energy contracts, or commodities) to Company B and almost simultaneously buys an almost identical product from Company B, can Company A report revenue at the fair value of the product sold? <span>Because the company’s revenue would be approximately equal to its expense, the net effect of the transaction would have no impact on net income or cash flow. However, the amount of revenue reported would be higher, and the amount of revenue can be important to a company’s valuation. In the earlier stages of e-commerce, for example, some equi







#reading-25-understanding-income-statement #revenue-recognition

However, the amount of revenue reported would be higher, and the amount of revenue can be important to a company’s valuation. In the earlier stages of e-commerce, for example, some equity valuations were based on sales (because many early internet companies reported no net income).

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3.2.3. Barter
from Company B, can Company A report revenue at the fair value of the product sold? Because the company’s revenue would be approximately equal to its expense, the net effect of the transaction would have no impact on net income or cash flow. <span>However, the amount of revenue reported would be higher, and the amount of revenue can be important to a company’s valuation. In the earlier stages of e-commerce, for example, some equity valuations were based on sales (because many early internet companies reported no net income). Under IFRS, revenue from barter transactions must be measured based on the fair value of revenue from similar non-barter transactions with unrelated parties (parties other




Flashcard 1480269630732

Tags
#reading-25-understanding-income-statement #revenue-recognition
Question
Under [...], revenue from barter transactions must be measured based on the fair value of revenue from similar non-barter transactions with unrelated parties (parties other than the barter partner).
Answer
IFRS

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3.2.3. Barter
er, and the amount of revenue can be important to a company’s valuation. In the earlier stages of e-commerce, for example, some equity valuations were based on sales (because many early internet companies reported no net income). <span>Under IFRS, revenue from barter transactions must be measured based on the fair value of revenue from similar non-barter transactions with unrelated parties (parties other than the barter partner).21 USGAAP state that revenue can be recognized at fair value only if a company has historically received cash payments for such services and can thus use this historical experience as a







#reading-25-understanding-income-statement #revenue-recognition
Under USGAAP barter revenue can be recognized at fair value only if a company has historically received cash payments for such services and can thus use this historical experience as a basis for determining fair value; otherwise, the revenue from the barter transaction is recorded at the carrying amount of the asset surrendered.
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3.2.3. Barter
nies reported no net income). Under IFRS, revenue from barter transactions must be measured based on the fair value of revenue from similar non-barter transactions with unrelated parties (parties other than the barter partner).21 <span>USGAAP state that revenue can be recognized at fair value only if a company has historically received cash payments for such services and can thus use this historical experience as a basis for determining fair value; otherwise, the revenue from the barter transaction is recorded at the carrying amount of the asset surrendered. <span><body><html>




Flashcard 1480273825036

Tags
#reading-25-understanding-income-statement #revenue-recognition
Question
Under [...] barter revenue can be recognized at fair value only if a company has historically received cash payments for such services and can thus use this historical experience as a basis for determining fair value; otherwise, the revenue from the barter transaction is recorded at the carrying amount of the asset surrendered.
Answer
USGAAP

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Under USGAAP barter revenue can be recognized at fair value only if a company has historically received cash payments for such services and can thus use this historical experience as a basis for det

Original toplevel document

3.2.3. Barter
nies reported no net income). Under IFRS, revenue from barter transactions must be measured based on the fair value of revenue from similar non-barter transactions with unrelated parties (parties other than the barter partner).21 <span>USGAAP state that revenue can be recognized at fair value only if a company has historically received cash payments for such services and can thus use this historical experience as a basis for determining fair value; otherwise, the revenue from the barter transaction is recorded at the carrying amount of the asset surrendered. <span><body><html>







Flashcard 1480275397900

Tags
#reading-25-understanding-income-statement #revenue-recognition
Question
Barter en español
Answer
Trueque

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3.2.3. Barter
Revenue recognition issues related to barter transactions became particularly important as e-commerce developed. As an example, if Company A exchanges advertising space for computer equipment from Company B but no cash changes han







Article 1480277757196

3.2.4. Gross versus Net Reporting
#cfa-level-1 #reading-25-understanding-income-statement #revenue-recognition

Another revenue recognition issue that became particularly important with the emergence of e-commerce is the issue of gross versus net reporting. Merchandising companies typically sell products that they purchased from a supplier. In accounting for their sales, the company records the amount of the sale proceeds as sales revenue and their cost of the products as the cost of goods sold. As internet-based merchandising companies developed, many sold products that they had never held in inventory; they simply arranged for the supplier to ship the products directly to the end customer. In effect, many such companies were agents of the supplier company, and the net difference between their sales proceeds and their costs was equivalent to a sales commission. What amount should these companies record as their revenues—the gross amount of sales proceeds received from their customers, or the net difference between sales proceeds and their cost? US GAAP indicate that the approach should be based on the spec



Flashcard 1480312884492

Tags
#cfa-level-1 #reading-25-understanding-income-statement #revenue-recognition
Question
Under the cost recovery method the cash payments include [...] and [...]
Answer
principal

interest on any financing from the seller

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3.2.2. Installment Sales
thod and the cost recovery method . Under the installment method, the portion of the total profit of the sale that is recognized in each period is determined by the percentage of the total sales price for which the seller has received cash. <span>Under the cost recovery method, the seller does not report any profit until the cash amounts paid by the buyer—including principal and interest on any financing from the seller—are greater than all the seller’s costs of the property. Note that the cost recovery method is similar to the revenue recognition method under international standards, described above, when the outcome of a contract cannot be measured reliabl







Flashcard 1480318913804

Tags
#cfa-level-1 #reading-25-understanding-income-statement #revenue-recognition
Question
Under US GAAP, when the seller is able to [...], a sale of real estate is reported at the time of sale using the normal revenue recognition conditions.
Answer
estimate amounts that will not be collected

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Under US GAAP, when the seller has completed the significant activities in the earnings process and is either assured of collecting the selling price or able to estimate amounts that will not be collected, a sale of real estate is reported at the time of sale using the normal reve

Original toplevel document

3.2.2. Installment Sales
for some installment sales. An example of such deferral arises for certain sales of real estate on an installment basis. Revenue recognition for sales of real estate varies depending on specific aspects of the sale transaction.19 <span>Under US GAAP, when the seller has completed the significant activities in the earnings process and is either assured of collecting the selling price or able to estimate amounts that will not be collected, a sale of real estate is reported at the time of sale using the normal revenue recognition conditions.20 When those two conditions are not fully met, under US GAAP some of the profit is deferred. Two of the methods may be appropriate in these limited circumstances and relate to the amou







Flashcard 1480321535244

Tags
#cfa-level-1 #reading-25-understanding-income-statement #revenue-recognition
Question
Under US GAAP, when the seller has completed the significant activities in the earnings process and is either [...], a sale of real estate is reported at the time of sale using the normal revenue recognition conditions.
Answer
assured of collecting the selling price

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Under US GAAP, when the seller has completed the significant activities in the earnings process and is either assured of collecting the selling price or able to estimate amounts that will not be collected, a sale of real estate is reported at the time of sale using the normal reve

Original toplevel document

3.2.2. Installment Sales
for some installment sales. An example of such deferral arises for certain sales of real estate on an installment basis. Revenue recognition for sales of real estate varies depending on specific aspects of the sale transaction.19 <span>Under US GAAP, when the seller has completed the significant activities in the earnings process and is either assured of collecting the selling price or able to estimate amounts that will not be collected, a sale of real estate is reported at the time of sale using the normal revenue recognition conditions.20 When those two conditions are not fully met, under US GAAP some of the profit is deferred. Two of the methods may be appropriate in these limited circumstances and relate to the amou







Flashcard 1480326778124

Tags
#cfa-level-1 #reading-25-understanding-income-statement #revenue-recognition
Question
As internet-based merchandising companies developed, many sold products that they had never held in inventory; they simply arranged for the supplier to ship the products directly to the end customer.

What is the issue that came up with this?
Answer
Gross vs Net reporting

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3.2.4. Gross versus Net Reporting
Merchandising companies typically sell products that they purchased from a supplier. In accounting for their sales, the company records the amount of the sale proceeds as sales revenue and their cost of the products as the cost of goods sold. <span>As internet-based merchandising companies developed, many sold products that they had never held in inventory; they simply arranged for the supplier to ship the products directly to the end customer. In effect, many such companies were agents of the supplier company, and the net difference between their sales proceeds and their costs was equivalent to a sales commission. What amount







Article 1480329137420

3.3. Implications for Financial Analysis
#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition

As we have seen, companies use a variety of revenue recognition methods. Furthermore, a single company may use different revenue recognition policies for different businesses. Companies disclose their revenue recognition policies in the notes to their financial statement, often in the first note. The following aspects of a company’s revenue recognition policy are particularly relevant to financial analysis: whether a policy results in recognition of revenue sooner rather than later (sooner is less conservative), and to what extent a policy requires the company to make estimates. In order to analyze a company’s financial statements, and particularly to compare one company’s financial statements with those of another company, it is helpful to understand any differences in their revenue recognition policies. Although it may not be possible to calculate the monetary effect of differences between particular companies’ revenue recognition policies and estimates, it is generally possible to characterize



#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
a single company may use different revenue recognition policies for different businesses.
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3.3. Implications for Financial Analysis
As we have seen, companies use a variety of revenue recognition methods. Furthermore, a single company may use different revenue recognition policies for different businesses. Companies disclose their revenue recognition policies in the notes to their financial statement, often in the first note. The following aspects of a company’s revenue recog




Flashcard 1480331496716

Tags
#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
Question
a single company may use different revenue recognition policies for different [...]
Answer
businesses.

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a single company may use different revenue recognition policies for different businesses.

Original toplevel document

3.3. Implications for Financial Analysis
As we have seen, companies use a variety of revenue recognition methods. Furthermore, a single company may use different revenue recognition policies for different businesses. Companies disclose their revenue recognition policies in the notes to their financial statement, often in the first note. The following aspects of a company’s revenue recog







Flashcard 1480333069580

Tags
#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
Question
Companies disclose their revenue recognition policies in the notes to their financial statement, often in [...] .
Answer
the first note

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3.3. Implications for Financial Analysis
As we have seen, companies use a variety of revenue recognition methods. Furthermore, a single company may use different revenue recognition policies for different businesses. Companies disclose their revenue recognition policies in the notes to their financial statement, often in the first note. The following aspects of a company’s revenue recognition policy are particularly relevant to financial analysis: whether a policy results in recognition of revenue sooner r







#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
The following aspects of a company’s revenue recognition policy are relevant to financial analysis:

Whether a policy results in recognition of revenue sooner rather than later,

To what extent a policy requires the company to make estimates.
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3.3. Implications for Financial Analysis
ods. Furthermore, a single company may use different revenue recognition policies for different businesses. Companies disclose their revenue recognition policies in the notes to their financial statement, often in the first note. <span>The following aspects of a company’s revenue recognition policy are particularly relevant to financial analysis: whether a policy results in recognition of revenue sooner rather than later (sooner is less conservative), and to what extent a policy requires the company to make estimates. In order to analyze a company’s financial statements, and particularly to compare one company’s financial statements with those of another company, it is helpful to understand any diffe




Flashcard 1480336477452

Tags
#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
Question
Sooner revenue recognition rather than later is [...].
Answer
less conservative

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The following aspects of a company’s revenue recognition policy are particularly relevant to financial analysis: whether a policy results in recognition of revenue sooner rather than later (sooner is less conservative), and to what extent a policy requires the company to make estimates.

Original toplevel document

3.3. Implications for Financial Analysis
ods. Furthermore, a single company may use different revenue recognition policies for different businesses. Companies disclose their revenue recognition policies in the notes to their financial statement, often in the first note. <span>The following aspects of a company’s revenue recognition policy are particularly relevant to financial analysis: whether a policy results in recognition of revenue sooner rather than later (sooner is less conservative), and to what extent a policy requires the company to make estimates. In order to analyze a company’s financial statements, and particularly to compare one company’s financial statements with those of another company, it is helpful to understand any diffe







Flashcard 1480340409612

Tags
#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
Question
The following aspects of a company’s revenue recognition policy are relevant to financial analysis:

Whether a policy results in recognition of revenue [...]
Answer
sooner rather than later

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The following aspects of a company’s revenue recognition policy are relevant to financial analysis: Whether a policy results in recognition of revenue sooner rather than later, To what extent a policy requires the company to make estimates.

Original toplevel document

3.3. Implications for Financial Analysis
ods. Furthermore, a single company may use different revenue recognition policies for different businesses. Companies disclose their revenue recognition policies in the notes to their financial statement, often in the first note. <span>The following aspects of a company’s revenue recognition policy are particularly relevant to financial analysis: whether a policy results in recognition of revenue sooner rather than later (sooner is less conservative), and to what extent a policy requires the company to make estimates. In order to analyze a company’s financial statements, and particularly to compare one company’s financial statements with those of another company, it is helpful to understand any diffe







Flashcard 1480342768908

Tags
#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
Question
The following aspects of a company’s revenue recognition policy are relevant to financial analysis:

To what extent a policy requires the company to [...].
Answer
make estimates

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following aspects of a company’s revenue recognition policy are relevant to financial analysis: Whether a policy results in recognition of revenue sooner rather than later, To what extent a policy requires the company to <span>make estimates.<span><body><html>

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3.3. Implications for Financial Analysis
ods. Furthermore, a single company may use different revenue recognition policies for different businesses. Companies disclose their revenue recognition policies in the notes to their financial statement, often in the first note. <span>The following aspects of a company’s revenue recognition policy are particularly relevant to financial analysis: whether a policy results in recognition of revenue sooner rather than later (sooner is less conservative), and to what extent a policy requires the company to make estimates. In order to analyze a company’s financial statements, and particularly to compare one company’s financial statements with those of another company, it is helpful to understand any diffe







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Although it may not be possible to calculate the monetary effect of differences between particular companies’ revenue recognition policies and estimates, it is generally possible to characterize the relative conservatism of a company’s policies and to qualitatively assess how differences in policies might affect financial ratios.
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3.3. Implications for Financial Analysis
estimates. In order to analyze a company’s financial statements, and particularly to compare one company’s financial statements with those of another company, it is helpful to understand any differences in their revenue recognition policies. <span>Although it may not be possible to calculate the monetary effect of differences between particular companies’ revenue recognition policies and estimates, it is generally possible to characterize the relative conservatism of a company’s policies and to qualitatively assess how differences in policies might affect financial ratios. <span><body><html>




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#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
Question
It may not be possible to calculate the [...] of differences between particular companies’ revenue recognition policies and estimates.
Answer
monetary effect

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Although it may not be possible to calculate the monetary effect of differences between particular companies’ revenue recognition policies and estimates, it is generally possible to characterize the relative conservatism of a company’s policies and t

Original toplevel document

3.3. Implications for Financial Analysis
estimates. In order to analyze a company’s financial statements, and particularly to compare one company’s financial statements with those of another company, it is helpful to understand any differences in their revenue recognition policies. <span>Although it may not be possible to calculate the monetary effect of differences between particular companies’ revenue recognition policies and estimates, it is generally possible to characterize the relative conservatism of a company’s policies and to qualitatively assess how differences in policies might affect financial ratios. <span><body><html>







#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
it is generally possible to characterize the relative conservatism of a company’s policies and to qualitatively assess how differences in policies might affect financial ratios.
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Although it may not be possible to calculate the monetary effect of differences between particular companies’ revenue recognition policies and estimates, it is generally possible to characterize the relative conservatism of a company’s policies and to qualitatively assess how differences in policies might affect financial ratios.

Original toplevel document

3.3. Implications for Financial Analysis
estimates. In order to analyze a company’s financial statements, and particularly to compare one company’s financial statements with those of another company, it is helpful to understand any differences in their revenue recognition policies. <span>Although it may not be possible to calculate the monetary effect of differences between particular companies’ revenue recognition policies and estimates, it is generally possible to characterize the relative conservatism of a company’s policies and to qualitatively assess how differences in policies might affect financial ratios. <span><body><html>




Flashcard 1480349584652

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#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
Question
It is generally possible to characterize the [...] of a company’s policies.
Answer
relative conservatism

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it is generally possible to characterize the relative conservatism of a company’s policies and to qualitatively assess how differences in policies might affect financial ratios.

Original toplevel document

3.3. Implications for Financial Analysis
estimates. In order to analyze a company’s financial statements, and particularly to compare one company’s financial statements with those of another company, it is helpful to understand any differences in their revenue recognition policies. <span>Although it may not be possible to calculate the monetary effect of differences between particular companies’ revenue recognition policies and estimates, it is generally possible to characterize the relative conservatism of a company’s policies and to qualitatively assess how differences in policies might affect financial ratios. <span><body><html>







Flashcard 1480351943948

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#cfa-level-1 #implications-for-financial-analysis #reading-25-understanding-income-statement #revenue-recognition
Question
It is generally possible to qualitatively assess how differences in revenue recognition policies might affect [...].
Answer
financial ratios

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it is generally possible to characterize the relative conservatism of a company’s policies and to qualitatively assess how differences in policies might affect financial ratios.

Original toplevel document

3.3. Implications for Financial Analysis
estimates. In order to analyze a company’s financial statements, and particularly to compare one company’s financial statements with those of another company, it is helpful to understand any differences in their revenue recognition policies. <span>Although it may not be possible to calculate the monetary effect of differences between particular companies’ revenue recognition policies and estimates, it is generally possible to characterize the relative conservatism of a company’s policies and to qualitatively assess how differences in policies might affect financial ratios. <span><body><html>