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Finance & Accounting
Pages 5 (1255 words)
Financial Accounting Name Institution Course Tutor Date Revenue Recognition This is one of the most important concepts in accounting. It is used to assess the financial position of an organization as well as its performance. Therefore, its recognition time, and the amount of revenue to be recognised are two fundamental factors that have to be carefully addressed.
This is regardless on the time when the cash is actually received. In a sale proceed, the revenue is recognized when the ownership of a good or a commodity has been transferred to the buyer together with the associated risks. The amount of the proceeds has to be reliably measurable in terms of revenue. Similarly, the costs associated with the transaction should also be measurable in a reliable way. Finally, there has to be a probability that the economic benefits related to the transaction will flow or will be realised by the organization. The same criteria apply for services rendered. In case of dividends, the revenue should be recognized once the right for payment has been established (IFRS, Pg. 2). In accounting, it is important to distinguish between the terms income, revenue and gains since it will facilitate accurate and clear preparation of the financial statement (Agtarap-San, Pg. 5). Income is defined as the savings opportunity that a business entity gains within a given time and it is measured in monetary terms (Weitzman, Pg. 2). Revenue on the other hand is the income that a business entity realises from its usual operations such as the sale of goods and services (ACCA, Para 5). Finally, gains refer to the increase in shareholder’s equity as a result of a transaction other than the daily operations. ...
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