Video: Revenue Recognition Overview

In this lesson, discover the fundamental principle that "revenue is recognized when earned," a phrase Nick Palazzolo, CPA, insists will become a mantra when dealing with sales and revenue questions. Nick illustrates how different types of businesses, from streaming services like Netflix to construction companies, recognize revenue depending on when they fulfill their obligations to customers. He emphasizes the significance of this concept by linking it to the potential risks of financial statement misrepresentation, such as overstating assets or revenue and understating liabilities, showcasing the real-world impact of proper revenue recognition practices.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Repeat after me, revenue is recognized when earned. And you're gonna fall in love with that phrase. You're gonna repeat it to yourself every time you see a question asking about the revenue, the sales, what should we recognize as revenue? So what does that really mean? Revenue is recognized when earned.

Netflix will record revenue from you from your $10 a month when Netflix fulfills its end of the bargain. When Netflix provides you with a month of streaming. So at the end of the month, they can recognize revenue. Construction companies, that's a big one here. Big industry.

The Asappa wants you to practice it. There's a lot of construction all around the country. No matter if you're in New York doing finance and you're in California doing entertainment, in tech, Midwest doing agriculture, whatever it may be, you're gonna need to practice these different methods, because the companies you will work for and the companies you will prepare financial statements for have different rules and regulations on when they can recognize revenue. And why is this important? Because what are the two biggest threats to financial statements?

Overstating assets and revenue and understating liabilities. So this falls into that category of possibly overstating revenue. And revenue is recognized when earned.

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Financial Accounting Basics

Module: 2 Concepts, 18 Videos

Revenue Recognition Overview

1:16

Revenue Recognition Objectives

1:09

Guidelines for Revenue Recognition

6:56

Revenue Recognition Before Delivery