ASC 974: Time-Sharing Activities Sales Revenue Journal Entries

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The Accounting Standards Codification (ASC) 974 provides guidance on real estate transactions, particularly for the time-sharing industry. Time-sharing activities involve the sale of interests in vacation properties, where multiple purchasers hold the right to use the property for specific periods each year. This article aims to explain the sales revenue recognition process for time-sharing activities and illustrate the associated journal entries under ASC 974.

 

Time-Sharing Sales Revenue Recognition:

Under ASC 974, sales revenue recognition for time-sharing activities depends on meeting certain criteria, which include:
 

  1. Evidence of a contractual arrangement with the buyer.
     

  2. Collection of the buyer's initial and continuing investment is reasonably assured.
     

  3. The seller has completed all activities necessary to make the property available for the buyer's use.
     

When these criteria are met, the sales revenue can be recognized using either the full accrual method or the percentage of completion method.

 

1. Full Accrual Method:

The full accrual method recognizes revenue when all of the above criteria are met, and the seller has completed all significant activities related to the sale. The revenue is recognized based on the total sales price of the time-share interest.
 

Journal Entry Example:

Assume a company sells a time-share interest for $20,000, with the buyer paying $4,000 upfront and agreeing to pay the remaining $16,000 in installments. The journal entries under the full accrual method would be:
 

 

2. Percentage of Completion Method:

The percentage of completion method recognizes revenue based on the progress of the project. This method is typically used when the construction of the property is not yet complete or when the seller is still responsible for significant property improvements.
 

Journal Entry Example:

Assume a company sells a time-share interest for $20,000, with the buyer paying $4,000 upfront and agreeing to pay the remaining $16,000 in installments. The construction of the property is 50% complete. The journal entries under the percentage of completion method would be:
 

As the construction progresses, additional journal entries would be made to recognize revenue in proportion to the completion.

 

ASC 974 establishes guidelines for sales revenue recognition in time-sharing activities, ensuring consistent and accurate financial reporting. Both the full accrual and percentage of completion methods have their merits, depending on the situation. By following ASC 974, companies can accurately recognize time-share sales revenue and maintain transparency in their financial reporting.