Principles of revenue recognition and accrual accounting

Revenue is recognized 

  • When warned and expenses are recognized 
  • Not coincide with receipt or payment of cash

According to IASB, revenue is recognized from sales of goods when: 

  • Ownership is transferred completely: risk and rewards
  • No continuing control over the goods sold
  • Revenue can be reliably measured
  • Cost can be reliably measured
  • Probable flow of economic benefits

Revenue is recognized from service rendered when: 

  • Revenue can be reliably measured
  • Cost incurred and cost of completion can be measured 
  • Probable flow of economic benefits 
  • Stage of completion can be measured

According to FASB, revenue is recognized when

  • Realized or realizable
  • Earned 
  • And 4 criteria to determine
    • Evidence of an arrangement between the buyer and the seller
    • Product delivered or service rendered 
    • Price is determined or determinable 
    • Selling can reasonably collecting money

Unearned revenue (14)

  • Receive cash before revenue recognition complete 
    • Unearned revenue is money received from a customer for work that has not yet been performed.(rent payment)
  • Reported on balance sheet as a liability
    • Is reduced in the future as revenue is earned