This document discusses the concept of revenue in accounting. It defines revenue as the gross income received from normal business activities before expenses are deducted. Revenue arises from the sale of goods or services and is measured in monetary terms. The document outlines the key principles of revenue recognition and matching revenues with related expenses. It also discusses the differences between recording revenue for service companies versus merchandising companies.

2. “GROUP”
 Hira Nasir
 Aniqa Ghaffar
 Dur-e-Saman
 Samreen Shahid
 Maryum Khalid

3. “REVENUE”

4. INTRODUCTION
• The purpose of business is to earn a profit from
the sale of products (revenue). These products
may be tangible in nature (i.e. goods) or intangible
(i.e. services). Profit is the money left over after
deducting from the gross sales of these
products, the cost of the activities required to
generate those sales (expenses). So a business
generates revenue when it exchanges its goods or
services with its customers in return for money or
other assets.

5. Now, in the 500 years of applied accounting,
the terminology of revenue has evolved into
names often labeled as 'turnover', 'Top line',
'sales', 'gross receipts', 'fees earned' or even
'income'. Unfortunately the term 'income' also
has a use in some circumstances of meaning
'profit' (i.e. after expenses have been
deducted) and can be confusing for some

6. Definitions of revenue
• “Revenues or revenue in business is the gross
income received by an entity from its normal
business activities before any expenses have
been deducted. Income may be received as
cash or cash equivalent and is typically
generated from the sale of goods or the
rendering of services for a particular period of
time.”

7. “The amount of money that a company actually
receives during a specific period, including discounts
and deductions for returned merchandise. It is the
"top line" or "gross income" figure from which costs
are subtracted to determine net income."
• From the business point of view revenue can be
understood as a gross increase in owners’ capital
resulting from the operations of a business
The price of goods sold and services rendered during
a given accounting period .

8. Other Revenue
• Revenue that a company derives from any source
other than its operations. For example, if a
company sells one of its factories or receives
income from interest payments, it is considered
other revenue. Most (though not all) other revenue
is non-repetitive and, as such, is excluded from
many calculations of profit.

9. Net revenue
• Net revenue describes the gross
revenue minus any product
returns, allowances and any
discounts for the early payment of
invoices.

10. Types of 'revenue' in accounting.
Sale of
goods
Other(sal
es of Services
assets Revenue
provided
etc)
Lending
fees and
investment
s

11. Main features
 revenue arises from the normal trading activities
of a business
 revenue eventually creates an inflow of funds into
the business
 revenue is measured in monetary terms

12. Main features
 revenue must be allocated to a particular
accounting period
 revenue is earned as a result of revenue
generating activities typically expressed as
expenses

13. Sources of Revenue
Revenue
Indirect
Direct sources sources
e.g sales of e.g
goods or interest,dividen
services d,commision or
rendered discount
received.

14. Debit credit rules for
revenue

15. WHY REVENUE INCREASES ASSETS
AND OWNER EQUITY??
• The inflow of cash and receivables from customers
increases the total assets of the company; on the
other side of equation liabilities do not change but
owner’s equity change to match the increase in
total assets. Thus revenue increases both assets
and owner’s equity.

16. Principles
Revenue Recognition Principle
Revenue recognition principle dictates that
companies recognize revenue in the accounting
period in which it is earned. In a service
enterprise, revenue is considered to be earned at
the time the service is performed.

17. Revenue recognition for service
companies
In a service company, revenue is consider to be
earned at the time the service is performed.
Revenue recognition for merchandisers
If a company is a seller of goods, revenue is earned
when the goods are delivered

18. Matching Principle
The matching principle is one of the cornerstones
of the accrual basis of accounting. Under the
matching principle, when you record revenue, you
should also record at the same time any
expenses directly related to the revenue. Thus, if
there is a cause-and-effect relationship between
revenue and the expenses, record them in the
same accounting period.

19. Here are several examples of the
matching principle
 Commission. A salesman earns a 5% commission on
sales shipped and recorded in January. The
commission of $5,000 is paid in February. You should
record the commission expense in January.
 Depreciation. A company acquires production
equipment for $100,000 that has a projected useful
life of 10 years. It should charge the cost of the
equipment to depreciation expense at the rate of
$10,000 per year for ten years.

20.  Employee bonuses. Under a bonus plan, an
employee earns a $50,000 bonus based on measurable
aspects of her performance within a year. The bonus
is paid in the following year. You should record the
bonus expense within the year when the employee
earned it.
 Wages. The pay period for hourly employees ends
on March 28, but employees continue to earn wages
through March 31, which are paid to them on April 4.
The employer should record an expense in March for
those wages earned from March 29 to March 31.

21. Revenue vs. cash timing
 Accrued Revenue: Revenue is recognized before
cash is received.
 Deferred Revenue: Revenue is recognized after
cash is received

22. Contra revenue
 Sales returns: Contains either an allowance for
returned goods, or the actual amount of revenue
deduction attributable to returned goods.
 Sales allowances: Contains either an allowance for
reductions in the price of a product that has minor
defects, or the actual amount of the allowance
attributable to specific sales.
 Sales discounts: Contains the amount of sales
discount given to customers, which is usually a
discount given in exchange for early payments by
customers.

23. Revenue in Book Keeping
Methods
Records revenue
when earned
Accrual
accounting
Records
expenses when
incurred
Book keeping Matching principle
methods
Records revenue
when received
Cash accounting
Records
expenses when
paid

24. Difference of recording
revenues b/w service and
merchandising companies:

25. Service company
minus
Operating equals
Net
Revenues
expenses income

26. Revenue in services company
EXAMPLE:
Overnight Auto service company collected$4000 for
repairs made to vehicles of AIRPOT SHUTTLE
SERVICE.
DATE DESCRIPTION DEBIT CREDIT
2012 CASH 4000
MAY 4
REPAIR 4000
SERVICE
REVENUE

27. Merchandising company
Cost of Operating Net
Net Sales minus minus equals
goods expenses income

28. Revenue in Merchandising Company
EXAMPLE:
To illustrate credit sales transactions.PW Audio Supply records
its May 4 sale of $3800 to Sauk Stereo. (Here we assume
merchandise cost PW Audio Supply $2400).
DATE DESCRIPTION DEBIT CREDIT
2012
MAY 4 CASH 3800
SALES 3800
4 COST OF 2400
GOODS SOLD
2400
MERCHANDISE
INVENTORY

29. T-ACCOUNT
• Let we illustrate it with the help of example:
Jessica made deliveries and received $500 cash from
clients:
Delivery Fees
1) $500

30. ENTRY IN JOURNAL
GENERAL:
 Example:
On April 22, the Greener Landscape Group cuts grass
for eight customers, billing each one $50 but
receiving no cash.
 In accordance with the revenue recognition principle, revenue is
recognized upon the completion of a service or the delivery of a
product, even if no cash changes hands at that time. Therefore,
an asset account (accounts receivable) increases and is debited
for $400 and a revenue account (lawn cutting revenue) increases
and is credited for $400.

33. Q & A