Question

Which of the following is not one of the steps for recognizing revenue?

-Identify the performance obligations of the contract
-Identify the contract with the customer
-Estimate the total transaction price of the contract based on the sum of the stand-alone selling prices of the goods and s
-Allocate the transaction price to the performance obligations

Answer 1

Subtracting explicit costs from revenue to calculate accounting profit is not a step in the revenue recognition process; it relates to profitability. The revenue recognition process includes identifying contracts and obligations, determining and allocating transaction prices, and recognizing revenue upon satisfying obligations.

Step-by-step explanation:

The step mentioned, allocating the transaction price to the performance obligations, is indeed one of the key steps in the process of revenue recognition according to the accounting standards. The question, however, asks for the step that is not a part of recognizing revenue.

The information provided, which involves subtracting explicit costs from revenue to calculate accounting profit, is related to profitability and not to the revenue recognition process. Revenue recognition typically involves identifying the contract with a customer, identifying performance obligations, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when or as the entity satisfies a performance obligation.