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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Concepts, Rules, and Examples

Revenues

As explained elsewhere in this book, revenue recognition practices have received a great deal of attention in recent years, largely because of aggressive reporting (including financial reporting fraud) that came to light in a number of restatements of previously issued financial statements and in SEC enforcement actions and private litigation. However, the underlying principles established by GAAP have not been altered and have remained essentially unchanged for many decades, notwithstanding the periodic issuance of certain interpretive literature (such as the SEC's Staff Accounting Bulletins 101 and 104).

Interim GAAP follows the discrete view for revenue recognition. Revenues are recognized as earned during an interim period using the same principles followed in annual reports. This rule applies to both product sales and service revenues. For example, product sales cutoff procedures are applied at the end of each interim period in the same manner that they are applied at year‐end, and revenue from long‐term construction contracts is recognized at interim dates using the same method used at year‐end.

With respect to contingent rental income of lessors, contingent rental income is not to be recognized during interim periods until the target that causes the contingent rental income to be earned is reached (EITF 98‐9).

Product Costs and Direct Costs

Product costs (and costs directly associated with service revenues) are treated in interim ...

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