 In 2015, the FASB issued an accounting standards update related to a new Revenue Recognition Standard. After some additional delays, the new revenue standard should be applied to annual reporting periods beginning after December 15, 2017. This video will introduce you to those new accounting standards. To start with, let's revisit revenue recognition. Hopefully you recall that revenue is recognized, and by that we mean journalized, when service is performed or goods are delivered. The amount of the journal entry is the fair value of the assets received. Usually that will be cash, but not always. In order to understand the impact of new revenue recognition standard, we first need to understand what a sales discount is. Many firms offer sales discounts to buyers to encourage buyers to pay early. This is a very common practice and one that almost all buyers take advantage of. The terms are written as I've shown here. The first one reads as 210 net 30. This means the buyer can take a 2% discount if the invoice is paid within 10 days. Otherwise, the balance is due in 30 days. You can see on the slide some other common types of discounts. Let's look at an example with sales discounts and how that impacts our journal entry. For example, on July 1, we sold goods on account for $20,000 that had a cost of $8,000. The terms were 210 net 30. Because so many companies take the sales discount, the new revenue requirements state that revenue must be recorded at the net of discount amount. So we would debit accounts receivable and credit sales revenue for $19,600 rather than the sales price of $20,000. We are recording the revenue at the net of discount amount. If the buyer pays us within the 10 days, then we debit cash and credit accounts receivable for the $19,600. On the rare occasion that a buyer pays beyond the discount period, the journal entry is slightly more complicated. We must debit cash for the full amount received of $20,000. We still credit accounts receivable for the $19,600 since that's the amount that we originally recorded. The difference of $400 is recorded to an other revenue account called something like sales discount forfeited or sales discount lost.