Question
Scenario 3: Revenues, Expenses, and Gains CON 6 includes the following guidance defining revenues, expenses, and gains Revenues 78. Revenues are inflows or other enhancements
Scenario 3: Revenues, Expenses, and Gains
CON 6 includes the following guidance defining revenues, expenses, and gains
Revenues
78. Revenues are inflows or other enhancements of assets of an entity or settlements of its
liabilities (or a combination of both) from delivering or producing goods, rendering ser-
vices, or other activities that constitute the entity's ongoing major or central operations.
Characteristics of Revenues
79. Revenues represent actual or expected cash inflows (or the equivalent) that have occurred
or will eventuate as a result of the entity's ongoing major or central operations. The assets
increased by revenues may be of various kindsfor example, cash, claims against cus-
tomers or clients, other goods or services received, or increased value of a product result-
ing from production. Similarly, the transactions and events from which revenues arise
and the revenues themselves are in many forms and are called by various namesfor
example, output, deliveries, sales, fees, interest, dividends, royalties, and rentdepend-
ing on the kinds of operations involved and the way revenues are recognized.
Expenses
80. Expenses are outflows or other using up of assets or incurrences of liabilities (or a com-
bination of both) from delivering or producing goods, rendering services, or carrying
out other activities that constitute the entity's ongoing major or central operations.
Characteristics of Expenses
81. Expenses represent actual or expected cash outflows (or the equivalent) that have
occurred or will eventuate as a result of the entity's ongoing major or central operations.
The assets that flow out or are used or the liabilities that are incurred may be of various
kindsfor example, units of product delivered or produced, employees' services used,
kilowatt hours of electricity used to light an office building, or taxes on current income.
Similarly, the transactions and events from which expenses arise and the expenses them-
selves are in many forms and are called by various namesfor example, cost of goods
sold, cost of services provided, depreciation, interest, rent, and salaries and wages
depending on the kinds of operations involved and the way expenses are recognized
Gains and Losses
82. Gains are increases in equity (net assets) from peripheral or incidental transactions of
an entity and from all other transactions and other events and circumstances affecting
the entity except those that result from revenues or investments by owners.
Characteristics of Gains and Losses
84. Gains and losses result from entities' peripheral or incidental transactions and from
other events and circumstances stemming from the environment that may be largely
beyond the control of individual entities and their managements. Thus, gains and
losses are not all alike. There are several kinds, even in a single entity, and they may be
described or classified in a variety of ways that are not necessarily mutually exclusive.
Scenario 3: Assume that a manufacturing company usually pays a waste company (by the
pound) to haul away manufacturing waste. Recently, a landfill gas company offered to buy a
small portion of the waste for cash, saving the manufacturing facility a portion of its disposal
costs and providing it with proceeds from the disposal.
The sale of manufacturing waste is not a primary business activity of the manufacturer;
however, it will now result in an inflow of cash.
Which is more appropriateclassifying this transaction as an increase in revenue, a
decrease in expense, or as a gain?
3. AnalysisRecord the transaction as increase in revenue or decrease in expense?
Alternatively, should the transaction be recorded as a gain?
Individual memo assignment # 1.write one page memo based on "Now You Try" 5.5 Scenario 3 in the Collins manual.
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