Revenue Recognition

Objective: To explain the revenue recognition methods used when the critical event and
measurability conditions for revenue recognition are not satisfied at the point of sale.

Revenue and Monetary Assets

Grennell Farm

Revenue recognition is that principle of accounting under the accrual concept where the revenue
earned are recognised when they are realised and are earned regardless of the time when cash is
received. In is strictly in contrary to the concept in cash accounting.

Revenue= (price at which goods or services are sold) * (number of units or amount sold)

Revenue recognition states that revenue should not be recorded until it is earned and the matching
of actual costs with estimated revenues

A service firm can recognise revenue from its activities as soon as they complete the service, even
though the firm havent got any payment since a long time from the customer being served.

When revenue is recognised before cash is received, it comes under Accrued revenue, and on the
other hand in deferred revenue it is recognised after cash is received.

Approaches to revenue recognition can be

Revenues and expenses are all recognized at the critical event, regardless of when they are incurred.
Expense are qualified as assets because they would generate resources or sales revenue at critical
event. As revenue is recognised, costs that havent been incurred will be accrued as estimated
liabilities and deferred expenses will be expensed. Revenues and expenses are all recognized at
critical event no matter when they are incurred.

Revenue Recognition Methods

Sales: When goods are shipped and services are provided

Collection: When payment is done

Production: If before delivery production is done then we say it as zero inventory and the entire
balance stock sale is calculated as current price.