it is a good thing SHMP never hired the accounting firm you worked for as their auditors....
There are 2 principles of revenue recognition under accrual accounting. First, an agreement which goods or services are to be delivered pursuant to typically a written agreement. Second, a reasonable certainty that payment will be made.
obviously an agreement has been entered into with expectation of collection, i dont think SHMP just sends out shipments without any hope of collection or derivative revenue..... hence the recognition of revenue and offsetting accounts receivable...if mgmt determines that the such revenue is not collectable it is directly written off to bad debt expense or set up as an allowance for doubtful accounts....
For example, if SHMP contracts with a distributor to purchase $250,000 in shrimp at x per pound for a 5 year period, SHMP would not recognize $5 million in revenues even if that agreement was with Whole Foods under the reasonable assurance principle of revenue recognition.
DUH, the principle of revenue recognition is to recognize the revenue in the period it is earned the $5 million isnt eared all at once therefore not recognized in one year....in your example SHMP would only recognize revenue for shrimp delivered but not necessarily paid for in the fiscal ear ended (not calendar year ended as fiscal year end can be different, just for clarification) hence the accounts receivable thingy....the 5 year contract you use as an example would be a note to the F/S....
That is why one goes to school for 4 years to become a CPA and it's a multi part test to be licensed as a CPA.
totally agree which i have completed and qualified in 1996 and obviously you did not
Existing GAAP requires that, to be recognized, revenue should be earned and should be realized or
realizable. SEC guidance expands upon this concept by providing four criteria for revenue recognition as follows:
(a) Persuasive evidence of arrangement exists
(b) Delivery has occurred or services have been rendered
(c) The seller’s price to the buyer is fixed or determinable
(d) Collectibility is reasonably assured
Again i agree and you are making my point for me so no need to argue this any further.....google, copy and paste is a wonderful thing....
this accounting firm you worked for where they hired to do audits by Martha Stewart, Conrad Black, Bernie Madoff or Leona Helmsley????
Never too late to go back to school.....
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