Comprehensive Report on Revenue Recognition in Business Finance

This report provides a comprehensive overview of revenue recognition, a critical aspect of financial accounting. It begins by differentiating between cash-based and accrual accounting methods, emphasizing the importance of accurate revenue recording. The report delves into the complexities of revenue recognition, addressing potential significant accounting and reporting changes, including multiple element arrangements, estimated selling prices, variable consideration, and the time value of money. It also examines the timing of revenue recognition, considering construction-type contracts, cost capitalization rules, and software arrangements. The report concludes by highlighting the importance of correct calculations and proper record-keeping for companies to realize revenue efficiently and achieve their financial goals. The report is supported by references to academic sources, providing a well-rounded understanding of the topic.

REVENUE RECOGNITION

INTRODUCTION
Two broad categories are present in which the
revenue gained by the company can be divided
to be presented in the financial reports
 In the case of cash-based accounting, it can be
seen that the records of the cash gained are to
be maintained only, no matter when or from
which source the revenue has been gathered.
 In the case of accrual accounting, it is
necessary to make the records as soon as the
revenue seems to be present no matter what
time in the future it will be gathered (Laux,
2014)

 Revenue recognition is dealt with very
intelligently and with very different processes
all over the world.
 Different processes of handling the task can
cause the financial unbalancing of the
company which makes it tough for the
investors around the world to compare
different companies in the same sector

Revenue recognition is dealt with very
intelligently and with very different processes
all over the world in different countries and
this makes the international market
comparison difficult (Laux, 2014).
There are five broad parts that a company
irrespective of their country and the stream
of work should follow to solve the problem of
revenue recognition.

POTENTIAL SIGNIFICANT ACCOUNTING AND
REPORTING CHANGES
Multiple element arrangements - If the
companies enter a cracking deal with the
customers then it must be seen that the
terms of the contract are a one-way track or
will benefit both the sides
Estimated selling price - It is also necessary to
access the price of such goods that are sold
as accessories and not separately along with
the extra additional services given
(Merchant, 2012)

Variable consideration - . Such deals are the ones
which require the calculation of transaction
beforehand as the time thing adds hardships to
the work.
Time value of money – If a contract taken up by the
company is of a long-term then the future price of
the transactions should be evaluated beforehand
(Davies & Crawford, 2012)
The timing of revenue recognition - The rule system
which has been set up may help some companies
with the ease of revenue recognition

Construction-type contracts - Accounting
related in such matter can be attributed on a
long term basis
Cost capitalization rules have also been
changed which will now put different costs
under different categories
cost applied is compared to the applied cost
expectation takes place to measure the
percentage completion of the project which is
also referred to as the “cost-to-cost”
procedure.

Construction-type contract costs – When it
comes to capitalization, contract costs are
not considered.
For instance they are assumed to be as
inventory or direct fulfillment costs) and
must be settled.
Software arrangements –
This category faces many problems as the
specifications of the vendor in some cases
does not meet with the manufactured
product

TIMING OF REVENUE RECOGNITION
The rule system which has been set up may
help some companies with the ease of
revenue recognition than before and also
sees that all the transaction are dealt with
correctly (Parrino et. al, 2012).
Companies owing to the services may
calculate it after the expiration of the
services

 Revenue can be recognized over time
using an input method that measures
progress based on either resource consumed
relative to total resources expected to be
consumed or efforts expended relative to
total efforts expected to be expended
(Gowthrope, 2011)

CONCLUSION
The companies who have the records in the
right place with perfect calculations will be
able to realize the revenue faster and can
also meet their targets and achieve their goal
faster

REFERENCES
Laux, B. (2014) Discussion of The role of revenue
recognition in performance reporting. Accounting
and Business Research. [online]. 44(4), 380-382.
Available from:
Gowthrope, C. (2011). Business accounting and finance
for non specialists (3rd ed.). South Western
Davies, T. and Crawford, I. (2012) Financial accounting.
Harlow, England: Pearson.
Merchant, K. A. (2012). Making Management
Accounting Research More Useful. Pacific Accounting
Review, 24(3), 1-34. doi:
https://doi.org/10.1108/01140581211283904
Parrino, R, Kidwell, D., & Bates, T. (2012) Fundamentals
of corporate finance. Hoboken, NJ: Wiley