Question

Please, I need correct answers. Thank you,

Short Answers

1-Why does it matter how and when a company recognizes revenue?

2-Why is determining when to recognize revenue more difficult under accrual accounting vs. cash accounting?

Answer 1

1. Basically, by the rule, you should not recognize revenue until it has been earned.There are a number of rules regarding exactly when revenue can be recognized, but the key point is that revenue occurs at the point when substantially all services and deliveries related to the sale transaction have been completed.Some Essential Rules are follows:

a)Recognition at the point of Delivery- In this method revenue recognised at the point of delivery of goods to customer.For Example, when the good is sold to customer, that is the point of revenue recoginition

b)Recognition when customer acceptance is secured - This method is used only when there is any uncertanity about customer acceptance after a product is delivered.

c)Recognition at the time of payment - If payment by the customer is not assured, even after delivery of the product or service has been completed, then the most appropriate time to recognize revenue is upon receipt of cash.

2. Under Accrual system determining when to recognize revenue is more difficult than cash system.

Under cash system, revenue recoginized only when the cash is receipt. But in accruel system Cash receipt is only arrangement of seller & purchaser, The revenue regoginized is based on the when the sale is made. and also applicable above situation