FAR - Financial Statements and Revenue Recognition

Question 1

Asset and Current Asset

Answer 1

An economic resource with a probable future economic benefit that the entity obtained or controls as a result of an event or transaction that has already occurred. Current asset is one that will be converted into cash within a year or one operating cycle whichever is longer.

Question 2

Liability and Current Liability

Answer 2

Economic obligation that is probable that will require the entity to transfer assets or provide services in the future as a result of an event or transaction that has already occurred. A current liability is one that will be settled within one year or one operating cycle whichever is longer.

Question 3

Cash Equivalent

Answer 3

A security easily converted into cash with an original maturity of 90 days of less.

Question 4

Financial Instrument

Answer 4

Cash, a security such as stock giving ownership in another entity or a contract that requires one entity to transfer cash or another financial instrument to another party.

Question 5

Financial Asset

Answer 5

Cash, a security, such as stock representing ownership in another entity, a contract that gives the entity the right to receive the cash or another financial instrument , or a a contract that gives the entity the right to exchange financial assets on potentially favorable terms.

Question 6

Financial Liability

Answer 6

A contract that requires the entity to transfer cash or another financial instrument to another party, or a contract that requires the entity to exchange financial instruments on potentially unfavorable terms

Question 7

5-Step Process for Recognizing Revenue

Answer 7

1. Identify contracts with customers.
2. Identify all separate performance obligations within each contract.
3. Determine the total consideration for each contract.
4. Allocate the total consideration among the separate performance obligations.
5. Recognize the revenue either:
   a. When the entity has satisfied the obligations.
   b. While the entity is satisfying the obligations.

Question 8

Contract

Answer 8

An arrangement between two or more parties that creates legally enforceable rights and obligations which conforms to the following four criteria:

1. The parties have approved the provisions and have agreed to perform
2. The rights and the payment terms in the contract must be identifiable though not necessarily explicit.
3. The contract has commercial substance.
4. Collection is probable.