Perry’s Gift Shop, a retail store, sold gift certificates that are redeemable in merchandise. On November 1, Year 12, a customer buys $6,000 of gift certificates from Perry’s Gift Shop. The gift certificates lapse 1 year after the date of issuance. Which of the following is correct?

CPA FAR revenue recognition follows ASC 606's five-step model: identify the contract, identify performance obligations, determine the transaction price, allocate the price, and recognize revenue when control transfers (at a point in time or over time). Expense recognition follows matching principles (cause-effect, systematic allocation, or immediate recognition).  Key Revenue Recognition (ASC 606) Five Steps: Identify the Contract: A mutual agreement exists with collectability likely. Identify Performance Obligations: Distinct goods or services promised in the contract. Determine... Show more

CPA FAR revenue recognition follows ASC 606's five-step model: identify the contract, identify performance obligations, determine the transaction price, allocate the price, and recognize revenue when control transfers (at a point in time or over time). Expense recognition follows matching principles (cause-effect, systematic allocation, or immediate recognition). 

Key Revenue Recognition (ASC 606) Five Steps:
Identify the Contract: A mutual agreement exists with collectability likely.
Identify Performance Obligations: Distinct goods or services promised in the contract.
Determine Transaction Price: Amount the company expects to receive.
Allocate Transaction Price: Distribute the price to each performance obligation based on standalone selling prices.
Recognize Revenue: When (or as) the performance obligation is satisfied by transferring control to the customer. 

Revenue Patterns:
Point in Time: Control transfers at a specific date (e.g., retail sale).
Over Time: Revenue is recognized over a period if the customer consumes benefits immediately, enhances an asset they control, or if the asset has no alternative use.
Consignment: Revenue is recognized when the consignee sells the goods to a third party. 

Expense Recognition Principle:
Expenses are recognized based on: 
Cause and Effect: Matching expenses directly to revenue (e.g., Cost of Goods Sold).
Systematic and Rational Allocation: Allocating costs over useful life (e.g., Depreciation).
Immediate Recognition: Recognizing costs immediately (e.g., Administrative expenses, repairs). 

Key FAR Considerations:
Long-Term Contracts: Revenue is often recognized over time using cost-to-cost methods (percentage of completion).
Bundled Products: If a contract includes multiple items (e.g., a laptop and service), allocate the price to each separate obligation.
Hardest Topics: Revenue recognition is frequently tested and considered one of the hardest topics in the FAR section. 

Note: Consignment sales to a third party require the consignee to actually sell the goods to the end user for the consignor to recognize revenue.

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