Shadowing Practice: Revenue Recognition ASC 606. Step 1: Identify the Contract. - Learn English Speaking with Video
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Hello and welcome to the session in which we would look at revenue recognition.
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What is revenue recognition?
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Revenue recognition is when do we recognize revenue?
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When do we record revenue?
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Revenue is one of the most important figures for companies.
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Revenue drives everything else on the financial statements.
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It's called the top line for a reason.
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It is the top line and it's the most important.
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It drives your earnings before interest and taxes.
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It drives your earnings per share, exist without revenue or they might be able to exist for a short period of time,
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very short period of time, if the investors kept investing money.
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But without revenue, you can't have a profit.
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Without revenues, you should not be incurring any expenses.
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So revenue is important.
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And in the real world, revenue is subject to fraud.
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So that's why revenue recognition is important.
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GAAP had numerous standards in the past, and this is, I'm going to give you a little bit of background information, over 100 standards for revenue recognitions, and some of them were inconsistent with each other.
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That's in the U .S.
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Globally, IFRS had only one general standard and some limited guidance.
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So what they decided to do, they decided to combine and create one set of revenue recognition for both U .S and IFRS.
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contract with customers and the key word is contract we need to talk a little bit more about contract.
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So the purpose of this convergence is to improve comparability across countries,
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companies, industries, because if investors wants to learn about Sony's revenue,
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it should be easy to read Sony's financial statement or if you want to learn about a European company, Adidas or a US company, it should be all the same in how they recognize revenue.
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The purpose also is to simplify the preparation of financial statement and also help the users understand how revenue is recognized.
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Specifically, they used something called the asset liability approach.
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And this approach said that revenue is driven by measurement of assets and liabilities arising from the contract.
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So basically what they said, when we need to recognize revenue, look at the contract and see how the contract is changing the assets of the company.
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For example, account receivable, do you have,
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do you expect, you have a legal expectation because of this contract.
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So this is what they said.
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The contract will drive this asset liability, what's called asset liability approach.
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So revenue is driven by how the contract is changing your assets and your liabilities.
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Specifically, they have five steps of revenue recognition.
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And to illustrate those five steps, I'm going to just work a simple example, but those five steps will be covered in details later on.
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In this session, I will cover one step of them,
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and that's So let's assume Tesla entered into a contract to sell the Model Y for 75 ,000.
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This is the Model Y to be delivered 60 days from today.
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First thing is that we have a contract.
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Well, the answer is yes, we have a contract.
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Maybe the customer went online to Tesla and input the information, and that's the contract.
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Or maybe the customer walked into Tesla's dealership in one of the malls in the US and signed some paperwork.
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So somehow there is a contract.
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Does it have to be in writing?
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We'll talk about the contract later on on the next slide.
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But the point is there is a contract.
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There is an agreement between a buyer and Tesla.
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That's the first thing.
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The second thing is the contract will have to identify the separate performance obligation in the contract.
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Now for the sake of simplicity, there's only one performance obligation and that is what?
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Tesla has to deliver the car to the customer.
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That's it.
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So identify the separate there's only one because we're keeping this example simple.
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One obligation and that's to deliver the car.
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Now if we for example
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if Tesla will would want to sell a maintenance agreement on the vehicle then that will be a separate
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separate performance obligation
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but here we're assuming one obligation step three in the count
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in the in the revenue recognition five step process is determine
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the transaction price that's easy the transaction price is 75 000
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we're going to have a whole session about determining the transaction price
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which is because it's sometime it's not as straightforward
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or simple then we're going to allocate once we determine the
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price once we determine the price we're going to allocate the
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price to the to the up to the obligation to the separate performance obligation One thing here, one price, one obligation, it's easy.
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So the 75 ,000 is toward the car.
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And Tesla would recognize revenue when each performance obligation is satisfied.
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They only have one and that one is to deliver the car.
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So revenue is recognized when Tesla performed the obligation.
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And when does Tesla perform the obligation?
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They're hoping 60 days from today they will perform the obligation.
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and cover step one I would like to remind you whether you are a student
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or a CPA candidate to take a look at my website farhatlectures .com my motto is saving CPA candidate
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and accounting students one at a time by providing new resources
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I don't replace your CPA review course I'm a useful addition to your CPA review course
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and this is a partial list of all my accounting courses intermediate international governmental
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or the tax so on and so forth I provide your lectures
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and multiple choice my CPA material is aligned with your backer Wiley gleam or miles, I also give you access to 1 ,500.
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Like this recording, share it with others, connect with me on Instagram.
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I'm trying to grow my Instagram, Facebook, Twitter, and Reddit.
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So let's now dive a little bit more into step one, identify the contract with customer.
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Well, what is a contract?
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That's the first thing we need to know.
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Well, it's an agreement that create enforceable rights and obligation.
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Two parties agree to the contract.
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You cannot have a contract with one party agreeing if the other party don't agree.
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If you want to sell me something, you send me a contract.
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Well, you send me the contract.
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You signed it.
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Well, if I didn't sign the contract, there is no agreement.
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So it has to be by both parties.
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And the contract doesn't have to be in writing.
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If it's in writing, it's helpful, it's good, it's better to have a contract in writing, but sometimes it's not feasible to have a contract in writing.
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Because let's assume you want to buy something from the store, you walk into the store, you pick it up from the shelves, you walk, to the register and you buy it.
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You don't need a contract to do that.
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So basically, or you don't even have to talk to anyone.
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For example, if you pick up something at the supermarket, sometime you have what's called the self -checkout.
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You check it out yourself.
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That's also a contract.
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You're taking the item.
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you're paying for it so the contract is implied sometimes the contract is oral
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if two individual agree and that could be two car dealer car dealerships
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or any two individuals can agree to buy and sell
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and as long as they trust each other it's an oral contract
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or sometimes it's the contract is customary for example
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when your inventory reaches a certain level i send you the
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product i don't have to talk to you this is customary in the industry
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because you need the product and you are relying on me so the contract doesn't have to be in writing
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it can be implied so
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but the point is you have to have some sort of a contract this is the foundation
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if you don't have a contract whether it's in writing
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or implied you don't have revenue
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because you need something okay the contract should also have five
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additional criteria we're going to go over these criteria separately one
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is commercial substance commercial substance sometimes it's called you know a protective clause not to inflate revenue simply put
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when you go into a contract with
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actual business transaction
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and you're not only shuffling papers to inflate your revenue simply
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put I would say okay let's do this let's sign this contract for this period
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and I will sell you the stuff right and next period I will buy it back no
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What you did is you inflated your revenue and you're buying back the product.
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Well, it has to have an actual business reason, not shuffling papers.
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It has to have business sense, economic substance.
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We are entering into a transaction because there's a benefit for you
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and a benefit for me in a sense that it's a business benefit.
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Both parties, as I told you, have to approve the contract.
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Otherwise, the contract is not enforceable.
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And we talked about this.
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Also, you cannot have a termination clause that you can easily exit.
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If we have a contract and you can easily exit, there are no consequences for breaking the contract.
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You really have no contract because you can at any point leave, exit.
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There is no real or true contract.
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payment later on there's one whole section about how to determine
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the payment you have to have enough information to determine the price
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or be able to estimate the price on the contract
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if it's easy like in our contract with tesla that's fine okay
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or for example let me just kind of make this little bit more interesting for example
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when you bought this tesla tesla would say look
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if our stock price above a thousand dollar okay we're gonna reduce five percent of your of your selling
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$75 ,000 then well if the stock price of Tesla on the day
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that we sell it to you we're going to give you a 5 % discount.
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Well, we could, it's not fixed, it's not specific, but I just made up this example just to tell you, it doesn't have to be specific.
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We'll talk about that later on, but this is just a fictitious example.
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Also the contract will hide will have to identify rights to goods and services.
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Exactly what am I getting?
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What am I paying for it?
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What am I getting?
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Okay, I know what I'm paying for.
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I know how much I'm paying, but what am I getting in return?
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You have to identify what am I getting.
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Also, collectability.
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If you cannot collect the money from a contract, you're basically a charity.
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That's not really a true contract.
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Now, sometimes you may enter into a contract and collectability from that person is susceptible because they're really shaky, but you still want to make the sale because they might...
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pay you.
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Under those circumstances when collectability is susceptible, you're not really sure, but you want to take your chance, then you would use cash basis accounting.
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And what's cash basis accounting?
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You wait until you get paid, and this is where you really recognize the revenue.
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You would use cash basis not accrual basis not what we are learning here.
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Now, what should you do now?
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The best way to learn more about this is to go to my website, farhatlectures .com, and work MCQs,
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work true -false questions, look at exercises that's going to help you reinforce the concept.
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In the next session, we're going to be looking at step two in the contract, and that is after we have a contract,
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we have to know what are the obligation, the performance obligation in the contract,
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and we'll have a one session about performance determining the price, so on and so forth.
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Invest in yourself, invest in your career.
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Don't shortchange yourself.
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Go to Farhat, subscribe.
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try it for a month you like it you keep it
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if it's helping you if not you let it go good luck study hard and of course stay safe
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Bu dersin kelimeleri ve konuşma notları
Bu videoda gölgeleme çalışması için 172 cümle ve 2035 kelime var. Konuşma bölümü 11:24 sürüyor. Konuşmacı dakikada yaklaşık 179 kelimeyle, günlük konuşmaya yakın doğal bir hızda konuşuyor. Kelimelerin %86’i İngilizcede en sık kullanılan 3.000 kelime arasında; geri kalanına başlamadan önce bakmakta fayda var.
Bu videodaki önemli kelimeler
Videodan öğrenmeye değer 15 kelime, telaffuzu ve anlamıyla:
| Kelime | Telaffuz | Anlam |
|---|---|---|
| obligation isim | /ˌɑ.blɪˈɡeɪ.ʃn̩/ | vazife, yükümlülük |
| recognition isim | /ˌɹɛkəɡˈnɪʃ(ə)n/ | tanınma |
| asset isim | /ˈæsɛt/ | varlık |
| liability isim | /laɪəˈbɪlɪti/ | borç |
| exit isim | /ˈɛɡzət/ | çekilme, çıkış |
| substance isim | /ˈsʌbstəns/ | madde |
| imply fiil | /ɪmˈplaɪ/ | gerektirmek, işaret etmek |
| clause isim | /klɔːz/ | cümlecik |
| investor isim | /ɪnˈvɛs.tə(ɹ)/ | yatırımcı, sermayedar |
| susceptible sıfat | [səˈsɛptɪbl̩] | duyarlı, elverişli |
| customary sıfat | /ˈkʌs.təˌmɛɹ.i/ | alışılagelmiş, alışılagelen |
| sake isim | /ˈseɪ̯k/ | gaye, kast |
| resource isim | /ɹɪˈzɔːs/ | kaynak |
| collect fiil | /ˈkɑlɪkt/ | katılmak, toplamak |
| fraud isim | /ˈfɹɔːd/ | dolandırıcılık |
Dikkat edilecek telaffuzlar
Konuşmacı we're, don't, I'm gibi kısaltılmış biçimleri 40 kez kullanıyor. Bunları duyduğunuz gibi kısa söyleyin.
- “sh” ve “zh” sesleri: obligation /ˌɑ.blɪˈɡeɪ.ʃn̩/, recognition /ˌɹɛkəɡˈnɪʃ(ə)n/, transaction /tɹænˈzækʃən/, preparation /ˌpɹɛpəˈɹeɪʃ(ə)n/, partial /ˈpɑɹʃəl/
- Uzun kelimeler — vurguyu doğru yere koyun: recognition /ˌɹɛkəɡˈnɪʃ(ə)n/, liability /laɪəˈbɪlɪti/, customary /ˈkʌs.təˌmɛɹ.i/, preparation /ˌpɹɛpəˈɹeɪʃ(ə)n/, recommendation /ˌɹɛkəmɛnˈdeɪʃən/
Bu videoyla nasıl çalışılır
- Videonun tamamını konuşmadan bir kez dinleyin ve bilmediğiniz kelimeleri not edin.
- 0,75× hızla başlayın, cümle cümle tekrar edin ve kolaylaşınca normal hıza dönün.
- Kendinizi kaydedin ve orijinaliyle karşılaştırın; obligation, recognition, asset gibi kelimelere özellikle dikkat edin.
Gölgeleme Tekniği Nedir?
Gölgeleme, başlangıçta profesyonel tercüman eğitimi için geliştirilen ve çok dilli Dr. Alexander Arguelles tarafından popüler hale getirilen, bilim destekli bir dil öğrenme tekniğidir. Yöntem basit ama güçlüdür: ana dili İngilizce olan bir sesi dinler ve hemen yüksek sesle tekrar edersiniz — konuşmacıyı 1-2 saniye gecikmeyle takip eden bir gölge gibi. Pasif dinleme veya dilbilgisi alıştırmalarının aksine, gölgeleme beyninizi ve ağız kaslarınızı gerçek konuşma kalıplarını eşzamanlı olarak işlemeye ve yeniden üretmeye zorlar. Araştırmalar, telaffuz doğruluğu, tonlama, ritim, bağlı konuşma, dinleme anlama ve konuşma akıcılığını önemli ölçüde geliştirdiğini göstermektedir — bu da onu IELTS Konuşma hazırlığı ve gerçek dünya İngilizce iletişimi için en etkili yöntemlerden biri yapar.