A local pharmacy company has been in business for many years. Recently the company got into some trouble because investors wanted to know why the profits were trending downward. So the management of this company decided they were going to change a few things. The management has decided that the new policy for recognizing revenues for the pharmacy businesses will be when the customer drops off the prescription. The controller, William asked about what if the customer does not pick up their prescription. The management stated that we don’t get a lot of people that don’t pick up their prescriptions. Management states this will recognize our revenue quicker and hopefully this will increase our cash flow. We must keep our investors happy. William, the controller has come to you as an outside CPA to research this change in revenue recognition. Please explain the 5-step revenue recognition policy that is now GAAP. Demonstrate how this follows this revenue recognition rule. Please provide journal entries in your example. Will this change in revenue recognition help increase cash flow?
A local pharmacy company has been in business for many years. Recently the company got into some trouble because investors wanted to know why the profits were trending downward. So the management of this company decided they were going to change a few things. The management has decided that the new policy for recognizing revenues for the pharmacy businesses will be when the customer drops off the prescription. The controller, William asked about what if the customer does not pick up their prescription. The management stated that we don’t get a lot of people that don’t pick up their prescriptions. Management states this will recognize our revenue quicker and hopefully this will increase our cash flow. We must keep our investors happy. William, the controller has come to you as an outside CPA to research this change in revenue recognition. Please explain the 5-step revenue recognition policy that is now GAAP. Demonstrate how this follows this revenue recognition rule. Please provide journal entries in your example. Will this change in revenue recognition help increase cash flow?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A local pharmacy company has been in business for many years. Recently the company got into some trouble because investors wanted to know why the profits were trending downward. So the management of this company decided they were going to change a few things. The management has decided that the new policy for recognizing revenues for the pharmacy businesses will be when the customer drops off the prescription. The controller, William asked about what if the customer does not pick up their prescription. The management stated that we don’t get a lot of people that don’t pick up their prescriptions. Management states this will recognize our revenue quicker and hopefully this will increase our
- Please explain the 5-step revenue recognition policy that is now GAAP.
- Demonstrate how this follows this revenue recognition rule.
- Please provide
journal entries in your example. - Will this change in revenue recognition help increase cash flow?
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