Accrual basis: revenues are recongnized when it is earned, realized, or doable and expenses are recognized when incurred, regardless if cash has been paid or non (this is following the Matching Principle)
Deferred revenue: is a financial obligation that is created when monies are received by a companion for goods and service non yet provided. Revenue will be recognized, and the deferred revenue liability eliminated, when the services are comeed.
(a) Under the cash basis mode, stock warrant costs are expensed as they are incurred warranty costs are charged to the period in which the company complies with the warranty. No liability is recored for future costs of warranties and the liability is not charged in the period of sales agreement. The cash basis mode is used when a company does not accrue a warratny liability in the year of the sale either because it is not probable that a liability has occured of the company cannot reasonably depend the amount of the liability.
Under the accrual method, warranty costs are charged to the operating expense in the year of the sale.
This method is the generally accepted method and shoudl be used whenever the warranty is an integral and inseparable part of the sale and is a way out contingency. This approach is also called the expense warranty approach.
(b) Warranties are sometimes sold separately from the products. When this happens, the sales warranty approach is utilise and revenue on the sale of the extended warranty is deferred and recognized on a straight line basis oer the life of the contract. This revenue is deferred because the seller of the warranty has an obligation to perform services over the life of the contract and these should be barely costs that vary with and are directly related to the sale of the contract.
(c) Mohican will recognize...If you want to get a full essay, order it on our website: Orderessay
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