Revenue Recognition
Revenue is a mode of taxation that is charged by the central governing authority for the purpose of generation income for the government. Revenue is charged on various items from the companies or on businesses that are conducted within the jurisdiction of the ruling authority (Bragg, 2010). Revenue generation is a process that is crucial as it touches on the income and profit made by the body that is being charged. For this reasons, there are measures and rules that govern the process. These rules dictate what is to be taxed as revenue and the criterion to be followed in order to identify what revenue is. Thus, the need to recognize what revenue is for the various companies and organizations.
These criteria that regulate the process are usually documented as laws that are to be adhered to. There are objectives to identify what the revenue is key since; it helps in realizing how much income the business has or is to generate, depending on the type of revenue (Bragg, 2010). These types of revenue include dividend revenue, which results from having shares in a company that allocates dividends. Another type is the sales revenue, which is charged from the money that is made from the sales of goods and services. Interest revenue is that which is made as a result of taxation of the taxpayer or someone that invests by savings in bank accounts or stock markets. The revenue that comes from renting of cars and offices and land is known as lease revenue while that which is gained when you commit your asset for use by other persons is royalty revenue.
With knowledge of these types of revenue, is easier for the person's operating businesses or the companies to identify their mode of charging....
Also with insight on the amount of revenue that is to be charged, it is easier for the institution or individual to do planning for the future and even to determine and do setting for the prices of the goods and services that they are offering. There are two major criteria that are used to determine the revenue, that is the matching and the realization principles. Under both of these principles, it is significant to realize the earnings and the model of payment of the revenue, usually in form of hard cash.
In determining the revenue for accounting purpose, the following are important factors that are used. Such include that we recognize the earnings process, to determine that there is no balance between that transactions of the customer and the service provider (Bragg, 2010). It is important also to consider the assurance of paying as we consider the accounts of the company or the business. The other way of determining the revenue for accounting purpose is called percentage of completion. In this method, considerations of the completion of the service that is being offered are done. The calculations of the costs incurred during the process of delivering the service are examined and even the estimated costs are included.
The matching principle used in recognition of revenue for accounting purpose considers the costs incurred in the process of doing business and also the expense for the same period. It is of importance to differentiate the product and period expenses. The product expense is the total costs that are incurred during the generation and production of the products. For the manufacturing industries, these product costs include all the prices of the actual materials used, the labor and…
