Question

3/ revenues and expenses, how and where they are reported ?

Answer 1

First let's discuss what is revenue and what is expense

Revenue

Revenue is a broad term and the type of revenue will change based on the type of business that you do. In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers. Revenue is also referred to as sales or turnover. Some companies receive revenue from interest, royalties, or other fees

Expenses

An expense is defined as an outflow of money or assets to another individual or company as payment for an item or service or an expense is the cost of operations that a company incurs to generate revenue.Common expenses include employee wages,factory expenses,administrative expenses, factory leases, equipment depreciation, payments to suppliers. Businesses are allowed to write off tax-deductible expenses on their income tax returns to lower their taxable income and thus their tax liability.

How Expense and revenue is reported

:Expense & Revenue recognition is an essential element in accounting because it helps define how profitable a business is in an accounting period.There are two type of methods to account revenue and expense

1)Cash method

2)Accrual method

Cash method:is an accounting method in which payment receipts are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid. In other words, revenues and expenses are recorded when cash is received and paid, respectively.

Accrual method:Accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs rather than when payment is received or made. The method follows the matching principle, which says that revenues and expenses should be recognized in the same period.

Generally bsiness follows Accrual method since it reflects matching concept and cash method is not. in case If you offer credit to customers for them to pay you at a later date, you must use accrual accounting. With cash-basis accounting, you do not record money due in the future. The same concept applies to making purchases on credit.

Revenues are recorded as Service Revenues or Sales when the service or sale has been performed, not when the cash is received. This reflects the basic accounting principle known as the revenue recognition principle.

Expenses are matched with revenues or with the period of time shown in the heading of the income statement, not in the period when the expenses were paid. This reflects the basic accounting principle known as the matching principle.

Where They are reported?

Revenue and Expense is reflected in  income statement or profit and loss account also known in other names such as profit and loss statement (P&L), statement of profit or loss, revenue statement, statement of financial performance, earnings statement, statement of earnings, operating statement, or statement of operations.Generally income statement or P&L is the main part of book keeping.The Net profit or loss from this statement is transfered to balance sheet or capital account based on the nature of entity.

The data items that you must be able to provide to construct a P & L statement are:

• Net Sales(total amount of revenue reported by a company on its income statement)
• Cost of Goods Sold( It refers to the direct costs of producing the goods sold by a company.)
• Selling and Administrative Expenses(Selling, general and administrative expense (SG&A) is reported on the income statement as the sum of all direct and indirect selling expenses and all general and administrative expenses (G&A) of a company. SG&A, also known as SGA, includes all the costs not directly tied to making a product or performing a service.)
• Other Income and Other Expense

and it helps to find out your operating income/loss,Net income/loss,Gross profit etc...

So basically you are doing any business to earn profit and in order to find out the profit or loss you have to know a clear knowledge about income and expense and how it is accounted.