Cash Recovery Method

1. Revenue Recognition Cash Recovery Method Used when uncertainty exists for collecting cash from sales.

2. Revenue Recognition Cash Recovery Method Used when uncertainty exists for collecting cash from sales. Gross profit is deferred until cash collections exceed costs.

3. Revenue Recognition Cash Recovery Method Example: Paterno Corp. sells inventory on Feb 1, 1999 to Husker Corp. for a total of $45,000. The cost of inventory to Paterno Corp. is $28,000. Cash payments are due: $15,000 each year for three years, beginning the end of 1999.

4. Revenue Recognition Cash Recovery Method Example: Paterno Corp. sells inventory on Feb 1, 1999 to Husker Corp. for a total of $45,000. The cost of inventory to Paterno Corp. is $28,000. Cash payments are due: $15,000 each year for three years, beginning the end of 1999.

5. Revenue Recognition Cash Recovery Method Example: Paterno Corp. sells inventory on Feb 1, 1999 to Husker Corp. for a total of $45,000. The cost of inventory to Paterno Corp. is $28,000. Cash payments are due: $15,000 each year for three years, beginning the end of 1999.

6. Revenue Recognition Cash Recovery Method Example: Paterno Corp. sells inventory on Feb 1, 1999 to Husker Corp. for a total of $45,000. The cost of inventory to Paterno Corp. is $28,000. Cash payments are due: $15,000 each year for three years, beginning the end of 1999.

7. Revenue Recognition Cash Recovery Method Example: Paterno Corp. sells inventory on Feb 1, 1999 to Husker Corp. for a total of $45,000. The cost of inventory to Paterno Corp. is $28,000. Cash payments are due: $15,000 each year for three years, beginning the end of 1999. $0, since we still have not fully recovered our costs.

8. Revenue Recognition Cash Recovery Method So, the 1999 journal entries are:

9. Revenue Recognition Cash Recovery Method So, the 1999 journal entries are: Feb 1: Accounts Receivable $45,000 Inventory Sales $45,000 note: sold inventory to Husker Corp.

10. Revenue Recognition Cash Recovery Method So, the 1999 journal entries are: Feb 1: Accounts Receivable $45,000 Inventory Sales $45,000 note: sold inventory to Husker Corp. Dec 31: Inventory Sales $45,000 Cost of Goods Sold $28,000 Deferred Gross Profit $17,000 note: close out the Inventory Sales account

11. Revenue Recognition Cash Recovery Method So, the 1999 journal entries are: Feb 1: Accounts Receivable $45,000 Inventory Sales $45,000 note: sold inventory to Husker Corp. Dec 31: Inventory Sales $45,000 Cost of Goods Sold $28,000 Deferred Gross Profit $17,000 note: close out the Inventory Sales account This represents $0 of realized profit that we computed earlier.

12. Revenue Recognition Cash Recovery Method Example: Paterno Corp. sells inventory on Feb 1, 1999 to Husker Corp. for a total of $45,000. The cost of inventory to Paterno Corp. is $28,000. Cash payments are due: $15,000 each year for three years, beginning the end of 1999.

13. Revenue Recognition Cash Recovery Method Example: Paterno Corp. sells inventory on Feb 1, 1999 to Husker Corp. for a total of $45,000. The cost of inventory to Paterno Corp. is $28,000. Cash payments are due: $15,000 each year for three years, beginning the end of 1999. Once the costs are recovered, we begin to realize profit.

14. Revenue Recognition Cash Recovery Method So, the 2000 journal entry is: Dec 31: Deferred Gross Profit $2,000 Realized Gross Profit $2,000 note: recognize gross profit on 1999 sales to Husker

15. Revenue Recognition Cash Recovery Method Example: Paterno Corp. sells inventory on Feb 1, 1999 to Husker Corp. for a total of $45,000. The cost of inventory to Paterno Corp. is $28,000. Cash payments are due: $15,000 each year for three years, beginning the end of 1999.

16. Revenue Recognition Cash Recovery Method So, the 2000 journal entry is: Dec 31: Deferred Gross Profit $2,000 Realized Gross Profit $2,000 note: recognize gross profit on 1999 sales to Husker Similarly, the 2001 journal entry is: Dec 31: Deferred Gross Profit $15,000 Realized Gross Profit $15,000 note: recognize gross profit on 1999 sales to Husker