Question

Discuss an example of when revenue (income) may be reported before the point of sale.

Answer 1

According to the principle, revenues are recognizedwhen they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash is received. In cash accounting – in contrast – revenues are recognizedwhen cash is received no matter when goods or services are sold.

Sales revenue is the income received by a company from its sales of goods or the provision of services. In accounting, the terms “sales” and “revenue” can be, and often are, used interchangeably to mean the same thing. It is important to note that revenue does not necessarily mean cash received. A portion of sales revenue may be paid in cash and a portion may be paid on credit, through means such as accounts receivables.

Sales revenue can be listed on the income statement as either the gross revenue amount or net revenue. Net revenue includes all deductions for the return of goods, the possibility of undeliverable merchandise and the expense for unrecoverable accounts receivables (also known as “bad debt expense”, which flows into the balance sheet as the allowance for doubtful accounts). Gross revenue, on the other hand, does not include these deductions. The gross revenue presentation will have the deductions listed below gross revenue, and a subtotal for netrevenue below that.

Often the term income is used instead of revenues.Examples of revenue accounts include: Sales, Service Revenues, Fees Earned, Interest Revenue, Interest Income. Revenue accounts are credited when services are performed/billed and therefore will usually have credit balances.