Question

If the process of earning revenue extends across multiple fiscal years ,accrual accounting permits the recognition of revenue before the completion of the earning process.reasearch and cite the ASC section that describes the two bases on which the percentage of completion of a long term contract may be calculated

fASB ASC : 605-35-25-52 25-52 income recognized shall be that percentage of estimated total income,either:
A) that incurred costs to date bear to estimate total costs after giving effect to estimates of costs to complete on most recent information
B) that may be indicated by such other measure of progress toward completion as may be appropriate having due regard to work performed.

Answer 1

The ASC 605-35-25-52 provides two methods for calculating the percentage of completion on long-term contracts for revenue recognition: incurred costs ratio and other measures reflecting progress. These recognitions contribute to determining a company's accounting and economic profits, with recognition lags posing challenges in timely data collection and interpretation.

Step-by-step explanation:

When dealing with long-term contracts, it is crucial to measure the percentage of completion to recognize revenue across multiple fiscal years, as per accrual accounting standards. The FASB ASC 605-35-25-52 outlines two bases for calculating the completion percentage: A) the ratio of incurred costs to date to the estimated total costs, considering the most recent information on estimated costs to complete, and B) any other measure that accurately reflects the progress toward completion, keeping the work performed in consideration.

Revenue recognition for long-term contracts is not merely about the cash exchanged but looks into the economic essence of the transactions over time. It distinguishes between reported accounting profit, which is total revenue minus explicit costs, and economic profit, which also considers implicit costs. Recognition lags, common in collecting economic data, further complicate timely revenue recognition and the reporting of a business's financial health.