Revenue Recognition Tips

Revenue recognition term is used in financial accounting. It means to show any revenue for comparing it with all expenses of organisation. Time is important when we will recognize any revenue for our accounting purpose. In accrual accounting, we recognize revenue when goods are sold. Receiving of cash of sales will just effect the cash flow not our income position. Like this, when we provide services to other, our revenue from these services will be realized. It may be possible that cash will be obtained after some time. If we did not sell goods but we got money in advance it will not be our revenue under accrual system of accounting. But  in cash accounting system, we recognize revenue when cash of sold goods are received. This was the basic of revenue recognition. Now, we are giving some tips which will be helpful to you when you will face the problem whether to show or not to show your revenue in books.

1st Tip : Revenue Recognition Through Sales Invoice 

You should follow simple point, when you will send sales invoice to the party, you should enter it in sales voucher. Never wait for delivery reaching to the Godown of party, never wait for getting any cheque or cash.

2nd Tip: Revenue Recognition of Any Intangible Asset's Sales 

For example, you sell your copyrights of your newly made lectures CD for 10 years and got  lump sum payment of Rs. 5,00,000. The revenue recognition will continue up to the 10 years. You can not make it as one year benefit for comparing your yearly expenses.

3rd Tip : Revenue Recognition Relating to Deferred Revenue 

Never do mistake to make advance received money of your future service or future salable product as your revenue. It is your liability and party can get money at any time.


4th Tip : Do accounting Work in different Companies

What is the exact time when a company record revenue may differ from company to company. One company may make rule with good faith of customer. Customer will get stock and will inspect it. After this, sales of goods are recorded in books. Second company may make different rule than first company. So, better is to get the taste of each company what are their old accountant doing regarding this.

5th Tip : Exceptional Of Revenue Recognition 

Never deem above basic principle of revenue recognition as fixed rule. Revenue recognition is flexible rule. There are lots of exceptions of this rule. For example, a construction business gets money on the part of completion of his work. So, on the basis of completion of work, he will calculate his revenue instead of completing whole project. Farmer may calculate their revenue on the basis of production because it is sure 100% his production will be bought by govt. at a fixed price. So, measurement of revenue is the production neither  the delivery of product nor cash received from the party. 

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Accounting Education: Revenue Recognition Tips
Revenue Recognition Tips
Accounting Education
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