Accounting Revenue Recognition

Inventory Classification

• Inventory Held for Distribution, Inventory Held for Long-term Use, and Inventory Held for Consumption are classifications of inventory held by a government entity.
• Semi-Expendable Property is not a classification of inventory held by a government entity.

Revenue Recognition

• Revenue from sales of medicines in a pharmacy is recognized when goods are transferred to the buyer.
• Revenue recognition is based on the substance of the relevant agreement, which requires an in-depth analysis by a CPA.

Property, Plant, and Equipment (PPE)

• When Entity A exchanges an item of PPE with Entity B, any cash paid or received from the exchange is added to or deducted from the initial measurement of the asset received.

Cultural, Historical, and Environmental Assets

• Heritage assets are assets that have historical, cultural, and environmental significance, and are intended to be preserved for future generations.

Intangible Assets

• Impairment loss on an intangible asset is the difference between the asset's carrying amount and its recoverable amount.
• Recoverable amount is the higher of an asset's fair value less costs to sell and its value in use.

Lease Agreements

• Lease agreements may include a lease bonus and a security deposit, which are accounted for separately.
• Rental revenue is recognized over the lease term.

Financial Statements

• Changes in accounting policies may be accounted for by prospective application.
• Non-adjusting events are never recognized but are always disclosed.
• Prior period errors are corrected by retrospective application.

Statement of Cash Flows

• The statement of cash flows shows the historical changes in cash and cash equivalents.

Classification of Leases

• The classification of leases under the GAM for NGAs is based on the extent of transfer of risks and rewards incidental to ownership of the leased asset from the lessor to the lessee.

Risks and Rewards

• A substantial transfer of risks and rewards incidental to ownership of an asset indicates a finance lease.

Net Assets Released from Restrictions

• Net assets released from restrictions are shown under revenues, gains, and other support on the statement of activities for a private not-for-profit institution.

Fair Value of Cash and Cash Equivalents

• The total gain from the change in fair value of cash and cash equivalents is calculated as the difference between the ending and beginning fair values.

Interest Rate

• The interest rate implicit in a lease can be approximately calculated using the present value of cash flows.

Periodic Interest Expenses

• The periodic interest expenses recognized on bonds issued at a premium will show a downward sloping line when plotted on a graph.

Statement of Changes in Net Assets/Equity

• The effects of current period errors, surplus or deficit for the period, and items of revenue and expense that are recognized directly in equity are reported in the statement of changes in net assets/equity.

Special Journals

• The Sales Journal, Cash Disbursements Journal, and other special journals are prescribed by the GAM for NGAs.

Government Entity Reporting

• The receipt of a pledge, donation in the form of services in kind, or repayment of a loan payable being forgiven may result in an increase or decrease in the revenue reported by a government entity in its statement of financial performance.