Revenues are vital for the expansion and growth of any organization. The reason is that they...

Revenues are vital for the expansion and growth of any organization. The reason is that they are an important component of the organization’s net income. Hence, they are central to financial analysis. According to US GAAP, a firm recognizes revenues when earned and when it has received an asset or satisfied a liability with a value the firm can precisely measure. In some instances, a firm can make an argument to recognize revenue before a product or service has been completed and delivered. Discuss situations when this scenario is correct

Expert Solution

Revenue Recognitions states that the process of recognising revenue before delivery of a product or service to a customer. This principle states that any company can record revenue when they are realized,due and earned. But in certain conditions, a company can also record revenue before the product or service is delivered to a customer.

In the following cases company can recognise revenue before the product or service gets delivered. They are:

1) Prior to production; that means any company can enter in to a contract with any other company or any person before the production or service starts, the revenue received at the time of entering in to a contract can recognised in the books as and when it is reveived.

2) During Production; as explained in the point 1 above company can also enter in to any contract with any person or company during the production, the production might not complete ir the product does'nt delivered at the that time but revenue will be recogmised in the books.

It is typically called as Accrual concept of accounting

This method of recognising revenue can be find in FASB Concept statement no 5

ekkarill92 answered 2 years ago

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