Laws!! Laws!! And Laws!! These are everywhere.
Did you ever park your vehicle on the wrong side, unintentionally, of parking area and police charged for the same? I had experienced it the other day. Will certainly ensure that the same is not repeated for the next time. But this is ethical too; we all must be aware of the laws whether they are of parking, driving or accounting (for account students and the employees who are involved in this concept.)
The accounting principles and laws are to be referred from GAAP – Generally accepted accounting Principles. And revenue recognition is one of the concepts of GAAP. How about checking out manuals as revenue recognition and measurement homework answers?
What is Revenue Recognition?
Now here, proper attention is required to ensure complete revenue recognition and measurement homework answers. Revenue means the Income earned after selling of any goods and services. It is calculated on a monthly basis, yearly basis or as the company’s financial team requires it.
Kindly do not assume that the Revenue and Profit are same. Profit comes when expenses are deducted from the Revenue. Many of deals get close because of huge revenue numbers. For the beginners, revenue must be known at the complete revenue count for the particular accounting period. Secondly, there must be assurance of the revenue earnings.
As per the principle, revenues can be recognized either they are realized or realizable or when the income is earned on account of rendering services or selling goods. There are circumstances when the cash is either received before the delivery of services as well as goods rendered or after the services rendered or delivery of concerned goods.
Hence revenues are recognized accordingly in two types of accounts:
- Deferred Revenue: When revenue is recognized after the cash is received.
- Accrued Revenue: When revenue is recognized before the cash is received.
As we mentioned before, that revenue must be realized. This means that cash is received for products or services sold. Realizable means that products are exchanged, but it is yet to be payable, expected to receive in future dates of the months. In simple words, revenue recognition is the calculation of the revenue and the income we earn after rendering services or selling of goods, subject to the payment received or not.
Topic doesn’t end here. For further revenue recognition and measurement homework answers, we need to understand few methods or process.
Some other points to note:
Hey! Before moving to the methods let us know first that from what kind of specific transaction the revenue can be recognized.
- Sale of Goods.
- Rendering any kind of
- Receiving Interest against the entitled Assets, Royalties or Dividends.
- Revenue from selling of an Asset.
Not to skip, there are few exceptions where the revenue is not recognized. When the company faces, buy back agreements and returns. As per the trusted sources, revenue guidance was issued by the IASB as IFRS 15. As per permission, this will come into effect only within reporting periods of annual standards starting on or after the January 1, 2018, deadline.
Finally moving to:
Methods of Revenue Recognition:
The method of Sale:
This is one of the accurate methods of revenue recognition. Under this method, revenue is recognized at the time of sale services as well as goods rendered are transferred to the buyer. The transaction can be done via cash or credit.
Method of Percentage:
Most of the constructions and engineering companies opt for this type of method. Because these companies take a long time to deliver the product or project to their respective customers. Companies which opt for this method take the benefit of showing to their Investors or share holders that the company is generating revenue, although the particular project is yet to be accomplished.
On the basis of 2 conditions, the companies use this percentage method. One is if it is a long term contract and secondly estimation is done on revenues and its cost.
The revenues and expenses under this method are recorded at the end of the completion of contract. Because the contract may not be accounted for its completion.
Recovery of Cost:
Under this method, profit or revenue is recognized, once all the expenses are been reimbursed.
This method is especially used in real estate business, credit or financial institutions where the deals are occurred on huge amount basis, down payment is transacted and rest of the amount is paid by the customer in equal installments along with interest.
According to IAS – International Accounting Standard, revenue can also be recognized by following steps:
- Number of transactions entered at the time of recognition and identifying the same.
- Identification of the particulars which are supposed to be transacted separately, especially for the cases of returns.
- Allocation of the components.
- Selection of the Revenue Recognition Criteria.
That’s it now. It seems that we have thoroughly gone through this concept of revenue recognition and measurement homework answers.
About the Measurement:
Revenue measurement differs from revenue recognition in terms of its Monetary Value. Measurement units are involved in this. The board has considered the various attributes for measurement like historical value, cash flows, in all financial transactions. Long-term Liabilities as bonds are counted at present value of those cash payments to be made in future.
Whether it is financial accounting, revenue recognition or any other commercial, economical, financial aspect of the company. It is necessary to go through the practical experience for better understanding. Or take examples of your own, assuming you own a company and assume the transactions accordingly. A look through revenue recognition and measurement homework answers can be of real help!