US GAAP Intermediate: Revenue, Accruals & Business Tax
Intermediate US accounting: ASC 606 revenue recognition, accrual vs cash basis, adjusting entries, federal business tax concepts, payroll withholdings at a high level, and 10-K/10-Q reporting for public companies.
4 sections · ~32 min · 5-question quiz (pass ≥ 70%)
1Revenue Recognition: ASC 606 Overview
ASC 606 (Revenue from Contracts with Customers) is the US GAAP standard for revenue. It replaced industry-specific guidance with a unified five-step model:
- Identify the contract with a customer.
- Identify performance obligations — distinct goods or services promised.
- Determine the transaction price — including variable consideration estimates.
- Allocate the price to each performance obligation (relative standalone selling price).
- Recognise revenue when (or as) each obligation is satisfied (control transfers).
Example — software vendor sells a licence ($60,000) and 12-month support ($12,000) in one contract for $72,000. Licence and support are distinct obligations.
| Obligation | Standalone price | Allocated (72/72) | Recognition timing |
|---|---|---|---|
| Licence | $60,000 | $60,000 | Point in time (delivery) |
| Support | $12,000 | $12,000 | Over 12 months ($1,000/mo) |
Control transfers when the customer can use and obtain substantially all benefits — not necessarily when cash is collected. This differs from cash-basis tax reporting and creates book-tax differences requiring deferred tax accounting (ASC 740).
2Accrual vs Cash Basis and Adjusting Entries
Accrual basis (GAAP) — record revenue when earned and expenses when incurred, regardless of cash timing.
Cash basis — record when cash moves (permitted for some small businesses for tax but not for GAAP financial statements given to investors or lenders).
Adjusting entries align books to accrual GAAP at period-end:
| Type | Example |
|---|---|
| Accrued revenue | Work done in December; billed in January |
| Accrued expense | Salaries earned Dec 25–31; paid Jan 5 |
| Prepaid expense | Annual insurance paid upfront; amortise monthly |
| Unearned revenue | Customer prepayment; recognise over service period |
| Depreciation | Allocate equipment cost over useful life |
Adjusting entry — $6,000 salary earned in December, paid January:
Dr. Salaries Expense 6,000
Cr. Salaries Payable 6,000
Prepaid insurance — paid $12,000 for 12 months on July 1; December 31 year-end adjustment for 6 months expired:
Dr. Insurance Expense 6,000
Cr. Prepaid Insurance 6,000
Without adjustments, GAAP financials misstate both the income statement and balance sheet.
3US Federal Business Tax Concepts (High Level)
Financial accounting (GAAP) ≠ tax accounting (IRC). Companies often maintain parallel schedules reconciling book income to taxable income.
Entity types (simplified):
| Structure | Tax treatment (general) |
|---|---|
| C Corporation | Entity pays corporate tax; dividends taxed again to shareholders (double taxation) |
| S Corporation / Partnership / LLC (default) | Pass-through — income taxed at owner level |
Key federal concepts for businesses:
- Taxable income — revenues minus deductions allowed by the Internal Revenue Code (may differ from GAAP net income).
- Depreciation — MACRS/accelerated methods for tax vs straight-line for GAAP → temporary differences.
- Net Operating Losses (NOLs) — rules for carrying losses forward (subject to limitation).
- Estimated tax payments — corporations and self-employed individuals pay quarterly.
Simple reconciliation:
| Item | $ |
|---|---|
| GAAP pretax income | 500,000 |
| Add: Book depreciation | 50,000 |
| Less: Tax depreciation | (80,000) |
| Taxable income | 470,000 |
Always consult current IRS guidance and state/local rules — rates and provisions change with legislation.
4Payroll Withholdings and SEC Reporting (10-K / 10-Q)
Payroll accounting — employer records gross wages and withholdings:
Employee earns $5,000 gross; federal income tax withheld $800, FICA (employee) $382.50, net pay $3,817.50:
| Account | Debit ($) | Credit ($) |
|---|---|---|
| Salaries Expense | 5,000 | |
| Federal Income Tax Payable | 800 | |
| FICA Taxes Payable | 382.50 | |
| Cash (net pay) | 3,817.50 |
Employer also owes employer FICA match and may owe FUTA/SUTA — expense and liability until remitted.
Public company reporting (SEC):
- 10-K — annual report with audited financial statements, MD&A, risk factors, controls disclosure.
- 10-Q — quarterly update (unaudited interim financials, MD&A update).
Both filed on EDGAR. GAAP statements in 10-K/Q follow ASC and SEC presentation requirements. SOX (Sarbanes-Oxley) requires CEO/CFO certification of financial statements and internal controls over financial reporting for accelerated filers.
Private companies don't file 10-K/Q but may produce Reviewed or Compiled statements for banks — still GAAP-based when specified in loan covenants.