 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 these new accounting standards. To start with, let's revisit revenue recognition. Hopefully you recall, the FASB has revised the definition of revenue recognition to say that revenue is recognized when a specific critical event has occurred and the amount of revenue is measurable. For an accounting principles class, the specific critical event that occurs are either services performed or goods are delivered. The amount of journal entry is the fair value of the asset received. Usually that will be cash, but not always. In order to understand the impact of the new revenue recognition standard, we need to first 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 many buyers take advantage of. The terms are written as I've shown here. The first one reads 210 net 30. This means that the buyer can take a 2% discount if the invoice is paid within 10 days. Otherwise, the balance is due in 30 days. And you can see on the slide some other common types of discounts. So let's look at an example with a sales discount and how that impacts our journal entries. For this 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. So we would debit accounts receivable and sales revenue for $20,000. We would debit costs of goods sold and credit inventory for $8,000. If the buyer pays us within the 10 days, then we would debit cash for the discounted amount of $19,600. We would also debit sales discount for $400 and credit accounts receivable for $20,000. On the occasion that the buyer pays beyond the discount period, the journal entry is slightly different. We debit cash and credit accounts receivable for the full amount received of $20,000. The method shown in this video is sometimes called the gross method.