Accounting- OMSA Exam Questions And Accurate
Answers 2024-2025
Revenue recognition
Companies recognize revenue when goods or services are transferred to customers for
the amount the company expects to be entitled to receive in exchange for those goods/
services
When is revenue recognized?
when the performance obligation is satisfied
Five steps of revenue recognition
1. Identify the contract
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price if there are multiple obligations, the contract price
should be allocated
5. Recognize revenue when (or as) each performance obligation is satisfied, over time
During which stage does the revenue recognition of membership or rental property
payment occur?
Step 5 - recognize revenue over a period of time
Tomato Inc sells the FertPhone. When Tomato sells a phone to a customer it includes
the AOS (operating system) and apps. On October 1, 2024 they sell 1,000 FertPhones to
consumers for $800 each. These phones have no service contract. They estimate that
60% of the sales are attributable to the phones hardware and the software will be used
for two years on average. How much revenue will Tomato recognize each year?
Total Sale: 1000 x 800 = 800,000
800,000 x .6 = 480,000
800,000-480,000 = 320,000
2024: 480,000 + Software (320,000 x 3/24 = 40,000)= $520,000
,2025: Software (320,000 x 12/24)= 160,000
2026: Software (320,000 x 9/24) = 120,000
What is the essential characteristic of cash and cash equivalents?
Liquidity
Cash
Includes money or currency the firm has on hand or in checking accounts, and items
acceptable for deposit in these accounts, such as checks and money orders
Cash equivalents
includes money market funds, short-term certificates of deposit and treasury bills.
Companies also report investments with maturity dates falling within three months in
this category.
Restricted cash
Cash that is not available for current use-usually is reported as investments or other
assets
Accounts recievable
Funds own to our firm from the sale of goods / services
AR - Sales on credit
also known as credit sales or sales on account-when companies sell to other companies
and they offer credit terms Initial valuation of A/R at the amount of the credit sale Net
realizable value subsequent valuation of A/R is at the amount expected to be received
Determining net realizable value 1- The amount that will not be collected because some
customers are unable to pay-
2- The amount not to be collected due to sales returns
Uncollectible A/R
Bad debts: customers who fail to pay the owed amount
Allowance for uncollectable debt [the provision method]
-Estimates future bad debts and matches that expense against the related revenues in
the same period as the revenues are recognized
-Write-off accounts receivable when it becomes uncollectible
-matches expenses to the same period of revenues
How to Calculate the Amount of Expected Uncollectibles
, Normally either based on an aging analysis or based on a straight percentage
Raintree cosmetic example for estimation of uncollectibles and recognition of bad debt
During 2023 sales on credit were 1750, cash collected from customers was1830 and
$35 in A/R was written off. At an estimate, the allowance for uncollectible accounts is 10
% of the year end balance in A/R. How much allowance for uncollectible accounts will
Raintree recognize at the end of 2023? how much bad debt they recognize?
- In 2022, recievables, net of allowance for bad debt is $30= $432
Inventory: Asset consisting of goods owned by the business and held for resale or for
future use in the manufacture of goods for sale.
What costs should be included in inventory?
Any cost incurred to get inventory from its purchased state into a location where it can
be sold. Examples: cost of purchase, shipping costs, import duties
What are the two types of inventory
Merchandising inventories and manufacturing inventories
Merchandising inventories
Physical form of goods does not change before the sale Cost = purchase price + taxes,
duties, freight etc.
Manufacturing Inventories:
Goods are changed in the physical form before the sale. It consists of three categories
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