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Revenue Recognition Principle

In: Business and Management

Submitted By SYLVIAHUAN7879
Words 336
Pages 2
In the field of accounting, there has few general rules and guideline and defined as accounting principles. A number of basic accounting principles have been developed through common usage. And revenue recognition principle is one of the accounting principle and it is an important cornerstone of accrual accounting along with the matching principle. For the revenue recognition principle, the accounting guidelines demand that revenues is to be recorded on the company financial statement when the product delivery or service completion, without regard to the timing of cash flow. So, the company no need to wait until cash is received before they recognize revenue. For instance, a company made a sale for RM 10,000 within an accounting period but has not received payment. The sale is verified as revenue though the company was not paid. Revenue recognition principle also stated the revenue is to be recognized when the rewards and benefits associated with the goods sold or service provided is transferred, where the amount can be estimated dependability. For instance, no revenue is recognized when the talk time scratch card is sold by a telecommunication company but it is recognized when the buyer makes a call and consumes the talk time.
Besides, the revenue recognition principle gives a guidelines to manager and auditors for the way to recognize the revenue. When the transaction is in its early stage, the outcome of transaction cannot be measured reliably because the transaction will look more profitable whereas the transaction will look less profitable when the revenue is recognized too late. Therefore, the revenue should equal the value of the assets received from the organization’s operating activities within a specific time period. The revenue recognition principle is needed on the financial statement because it produces a connection between business activity,...

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