revenue recognition

1. TOPIC :

2. WHAT IS REVENUE?
1. Revenue is 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.
2. Revenue is calculated by multiplying the price at which goods or
services are sold by the number of units or amount sold.
3. Revenue is also known as "REVs."

3. WHAT IS REVENUE RECOGNITION?
Revenue recognition is an accounting principle under
generally accepted accounting principles (GAAP) that
determines the specific conditions under which revenue is
recognized or accounted for. Generally, revenue is
recognized only when a specific critical event has occurred
and the amount of revenue is measurable. However, there
are several situations in which exceptions may apply.

4. REVENUE RECOGNITION PRINCIPLES:
•The revenue recognition principle provides that revenue is recognized:
when it is earned, and
when it is realized or realizable
•Revenue is earned when the earnings process is substantially complete
•Revenue is realized when goods and services are exchanged for cash or claims
to cash
•Revenue is realizable when assets received are convertible into a known
amount of cash

5. Four Types of Revenue Transactions :
•Revenue from selling products is recognized at the date of sale (date of
delivery).
•Revenue from services is recognized when services are performed and are
billable.
•Revenue from the use of enterprise’s assets by others is recognized as time
passes or as the assets are used up.
•Revenue from disposal of assets (other than inventory) is recognized at the
point of sale as gain or loss.

6. Revenue Recognition at Point of Sale :
Revenues from manufacturing and selling are commonly
recognized at point of sale
Exceptions:
•Sales with buyback agreements
•Sales when right of return exists (high rates that are not
reliably estimable)
•Trade loading/channel stuffing

7. Revenue Recognition After Delivery :
Revenue recognition is deferred when collection of sales price is
not reasonably assured and no reliable estimates can be made
The two methods that are used are:
•The installment sales method
•The cost recovery method.
•If cash is received prior to delivery, the method used is the deposit
method