From the course: Running a Profitable Business: Revenue Recognition
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Before cash collection
From the course: Running a Profitable Business: Revenue Recognition
Before cash collection
- Reminder: There are two traditional revenue recognition criteria that both must be satisfied before revenue can be recognized. The seller has to do something: the work. And the buyer has to do something: pay, or provide a valid promise to pay. Now, in many, many cases, revenue recognition is not a big issue. The primary example here is so-called cash and carry businesses such as Wal-Mart, Home Depot, Farmers Markets, a restaurant. A cash and carry business in one in which the customer visits the business, receives a service or chooses a good, pays cash, and then leaves. From an accounting standpoint, this is a very simple transaction. Now let's think about the biggest cash and carry business in the world. Wal-Mart. In terms of the two traditional revenue recognition criteria. And let's examine them. First, the work. Wal-Mart's work is providing the retail location and the goods for the customers to choose. Once the customer has chosen the merchandise that they want, put it in their…
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