Question

Explain in details the various methods of delayed or advanced revenue recognition lisited below:

-Revenue Recognized during the Production Process

-Revenue Recognized at the Completion of Production

-Revenue Recognized as Services Are Performed

-Revenue Recognized as Cash Is Received

-Revenue Recognized on the Occurrence of Some Event

Answer 1

Revenue Recognized during the Production Process
This happens in case long term projects when a contract needs years to comple its jobs. And Revenue is recognised at various stages of Job completion.
Accounting Approaches uses under this method :-
1. Percentage of completion method, based on ratio of Incurred costs to Total Costs
2. Completed Contract Method where accumulated costs n billings are recorded in balance sheet but no transfer to income statement.

Revenue Recognized at the Completion of Production
This happens in case of short term projects or Long term projects where there is difficulty in computing cost remaining to complete the project.
Income is recognised based on final, actual result.

Revenue Recognized as Services Are Performed
Under this method, Revnue is recognised when final service is performed.
Revenue is not recognised untill entire services has been rendered.
Revenue is shown on income statement and Accured income is shown in balancesheet under current assets.

Revenue Recognized as Cash Is Received
This method is known as Cash basis Accounting.
Revenue is recognised when cash is received
and
expense in recognised when cash is paid.

Revenue Recognized on the Occurrence of Some Event
When there is event of financial transaction wheather it is cash transaction or Accrual, this method is followed.
Under this method all financial transactions are recorded. Based on these recorded transactions income statement balancesheet is prepared.