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Running Head: Revenue and Expense Recognition
Revenue and Expense Recognition
University of Phoenix
Revenue Recognition
Revenue is the inflow of funds or accounts receivable and may include other assets obtained from other businesses in exchange for provision of products or services by another company. There may be incidental revenue from financing activities, such as dividends, rent, or through the sale of assets. Revenue recognition is the “process of recording revenue, under one of the various methods, in the accounting period” (Business Glossary). According to Bragg (2002), gains or losses not having to do with ongoing activities, such as from the sale of an asset, should not be included with revenue from sales, as it would improperly show revenue that is not directly associated with the operations of the business (p. 220). Rules of revenue recognition, per Bragg (2002) include:
1. Revenue at point of delivery. Revenue is recognized when the service or product is delivered to the customer. Alternatively, a manufacture recognizes revenue when it places the product(s) on a conveyance, such as train or boat, for delivery to the customer. This method is not valid if the manufacturer owns the conveyance as the product is still under the control of the manufacturer until it arrives to the customer (p. 221).
2. Recognition of revenue when customer acceptance is secured. Revenue recognition is delayed until any contractual acceptance provisions have lapsed (p. 221).
3. Recognition of revenue at the time payment is received. If payment is not assured, even after deliv ...