The Earning Process
The process of earning revenue has a great deal to do with when revenue recognition occurs. Consider two major industries: manufacturing and merchandising. These two industries have very different earning processes, but from the standpoint of recognizing revenue they are quite similar.
A manufacturing firm acquires materials for production, makes the finished product from the materials, sells it to a wholesaler, a retailer, or end user, and finally collects payment for the product. The sale and the collection of the payment might occur simultaneously. They might also occur over a long period of time, if the manufacturer and the customer have negotiated conditions for a long-term receivable.
The earning process for a merchandiser ...
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