Page 10 - FINAL CFA I SLIDES JUNE 2019 DAY 7
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Session Unit 7:
24. Understanding Income Statements
Gross & Net Reporting of Revenue, p. 46
• Gross revenue reporting, reporting sales revenue and cost of goods sold separately.
• Net revenue reporting, only the difference in sales and cost is reported.
• While profit is the same, sales are higher using gross revenue reporting.
tanties
For gross under US GAAP, firm must:
1. Be the primary obligor under the contract.
2. Bear the inventory risk and credit risk.
3. Be able to choose its supplier.
4. Have reasonable latitude to establish the price.
Implications for Financial Analysts, p.47
As CFA, check:
(1) how conservative are the firm’s revenue recognition policies, and
(2) the extent to which the firm’s policies rely on judgment and estimates.
