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Revenue Recognition 2010

Revenue Recognition 2010

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Published by Cindy Zhang

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Published by: Cindy Zhang on May 26, 2012
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If an arrangement requires the performance of multiple acts, but the fnal act is

signifcant to the arrangement as a whole, revenue should be recognized using the
“completed performance method.” Under the completed performance method, revenue
is not recognized before the fnal act is executed. The receipt of nonrefundable amounts
does not impact revenue recognition since the signifcance of the fnal act implies that
performance does not substantively take place until the fnal act is completed.
A single act of service signifying performance completion (“fnal act”) is generally
identifed by the entity while evaluating the service arrangement to determine the
appropriate accounting model to apply in arrangements to be accounted for using the
completed performance method. As a result, determining the timing of revenue recognition
using the completed performance method is not a diffcult task. Revenue is recognized once
the fnal act is completed.

The following example illustrates these concepts.

Completed performance method

Entity A enters into an arrangement with Customer B to provide moving services, including packing, loading,
transporting, and unloading the contents of Customer B’s home to move Customer B from Seattle, WA, to
Boise, ID.

Entity A has agreed to perform multiple acts for Customer B in connection with its move to Boise, ID. However,
the fnal act of delivering and unloading the contents in Customer B’s new home may be so signifcant that Entity A
should recognize revenue when it has completed unloading Customer B’s possessions in the new home.

What is the accounting for service transactions? 51

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