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Finance accounting assignment - Essay Example
Finance & Accounting
Pages 5 (1255 words)
Question 1: Revenue Recognition The chief objective in auditing is to see that the statements of account convey true and fair picture of the affairs of the company during specified period. It should not mislead others. The errors and frauds should not exist to distort what the accounts are expected to convey…
Income encompasses both revenue and gains. Revenue is income that arises in the course of ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends and royalties. “Revenue is recognised on the provision of goods and services that relate to the ordinary activities of the entity” (ACCA, 2013). Gain or loss is calculated with reference to the amount received in excess or short of the asset's carrying amount in the books of account. It is also important in accrual accounting that revenue and expenses are required to be matched with the accounting period. IAS 18 clearly specifies that “When the selling price of a product includes an identifiable amount for subsequent servicing, that amount is deferred and recognised as revenue over the period during which the service is performed” (ec.europa.eu, p. 2). For instance, income received in respect of annual maintenance contract by a company can recognise only 1/12th of revenue in a month. It is immaterial whether a sale is made on cash or credit basis. ...
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