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Revenue Recognition by Frank J. Beil

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Service Warranties

Service arrangements that involve the product installation (mechanics, building contractors) generally are packaged with a service warranty. The warranty is usually “paid” by re-performing the service contractual agreed to with the customer. Warranty provisions need to be evaluated by the seller in making a determination as the obligations it is incurring with customer in fulfilling the revenue arrangements.

When service providers warrant to customers performance specifications that go beyond their own standard warranties, it may be difficult to reasonably estimate the activities necessary to meet their obligations in the contract. When this is the case, revenue is deferred until the performance specifications are met. For ...

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