Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

Which of the following is the first step toward recognizing product sales in financial accounting?

Identifying the contract with the customer

Recording cash receipts

Calculating net sales by deducting returns and allowances

Delivering the product to the customer

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Verified step by step guidance

Understand the concept of revenue recognition: In financial accounting, revenue recognition is the process of identifying when and how revenue should be recorded in the financial statements. The first step is crucial as it sets the foundation for recognizing revenue accurately.

Review the five-step model for revenue recognition under ASC 606 (IFRS 15): The first step in this model is 'Identifying the contract with the customer.' A contract is an agreement between two or more parties that creates enforceable rights and obligations.

Analyze the options provided: The correct answer is 'Identifying the contract with the customer,' as this step ensures there is a valid agreement in place before any revenue can be recognized. Other options, such as recording cash receipts or delivering the product, occur later in the process.

Understand why identifying the contract is the first step: Without a contract, there is no basis for recognizing revenue. The contract outlines the terms, performance obligations, and payment details, which are essential for subsequent steps in revenue recognition.

Apply this knowledge to similar scenarios: Whenever you encounter a question about revenue recognition, start by determining whether a valid contract exists. This ensures compliance with accounting standards and accurate financial reporting.