When should income be recognised? In the context of inventory valuation, what is Net Realisable Value,...

When should income be recognised?

In the context of inventory valuation, what is Net Realisable Value, when might it be used and why?

Expert Solution

1.

Cash basis accounting recognizes income when cash is received.

Accrual basis accounting, which is so much so prevalent has strict but simple rules on when income should be recognized

First Criteria

Evidence must exists supporting the conclusion that the transaction in question has indeed produced income

Second Criteria

It must have been earned.Earned means either that the goods have been delivered and received or that the service has been performed for the consumer

Third Criteria

Its Value must be able to be determined at present

Fourth Criteria

It must be realizable, meaning that there exists the reasonable expectation that payment will be received on what is owed.

2.In the context of inventory, net realizable value or NRV is the expected selling price in the ordinary course of business minus the cost of completion, disposal and transportation.

Net Realizable value is used for the valuation of closing inventory while determining the lower of cost and Net Realisable Value.

ekkarill92 answered 2 years ago

what should income be recognised ?

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