revenue

Examples of revenue in the following topics:

• Revenue

  • Revenue refers to the mechanism by which income enters a company.
  • Revenue accounts indicate revenue generated by the normal operations of a business.
  • Revenue accounts have a normal credit balance.
  • Expenses should be matched with revenue.
  • The same idea holds for revenue and incoming cash flows.

• Current Guidelines for Revenue Recognition

  • Transactions that result in the recognition of revenue include sales assets, services rendered, and revenue from the use of company assets.
  • They both determine the accounting period in which revenues and expenses are recognized.
  • Revenue is recognized due to the passage of time or as assets are used.
  • The principle allows a better evaluation of the income statement, which shows the revenues and expenses for an accounting period or how much was spent to earn the period's revenue.
  • Guidelines for revenue recognition will affect how and when revenue is reported on the income statement.

• Relationship Between Output and Revenue

  • Companies can also receive revenue from interest, royalties, and other fees.
  • Businesses analyze revenue in their financial statements.
  • Revenue is an important financial indiator, though it is important to note that companies are profit maximizers, not revenue maximizers.
  • It generates revenue by selling its output.
  • It is however, a profit maximizer, not an output or revenue maximizer.

• Revenues

  • Every time a business sells a product or performs a service, it obtains revenue.
  • This is referred to as gross revenue or sales revenue.
  • In the United Kingdom and other countries, revenue is referred to as turnover.
  • For example, "Last year, Company X had revenue of $42 million. "
  • Revenue is used as an indication of earnings quality.

• Recognition of Revenue at Point of Sale or Delivery

  • Companies can recognize revenue at point of sale if it is also the date of delivery or if the buyer takes immediate ownership of the goods.
  • Since most sales are made using credit rather than cash, the revenue on the sale is still recognized if collection of payment is reasonably assured.
  • The revenue earned will be reported as part of sales revenue in the income statement for the current accounting period .
  • When the transfer of ownership of goods sold is not immediate and delivery of the goods is required, the shipping terms of the sale dictate when revenue is recognized.
  • A street market seller recognizes revenue when he relinquishes his merchandise to a buyer and receives payment for the item sold.

• Recognition of Revenue Prior to Delivery

  • Accrual accounting allows some revenue recognition methods that recognize revenue prior to delivery or sale of goods.
  • The accounting principle regarding revenue recognition states that revenues are recognized when they are earned (transfer of value between buyer and seller has occurred) and realized or realizable (collection is reasonably assured).
  • Revenue must be realizable.
  • Completion of production method: This method allows recognizing revenues even if no sale was made.
  • All expected revenues and costs of production related to the units produced will be reported on the income statement.

• Recognition of Revenue After Delivery

  • In this situation, revenue is not recognized at point of sale or delivery.
  • There are three methods that recognize revenue after delivery has taken place: .
  • The installment sales method recognizes income after a sale or delivery is made; the revenue recognized is a proportion or the product of the percentage of revenue earned and cash collected.
  • The seller records the cash deposit as a deferred revenue, which is reported as a liability on the balance sheet until the revenue is earned.
  • As the delivery of the magazines take place, a portion of revenue is recognized, and the deferred liability account is reduced for the amount of the revenue.

• Unearned and Deferred Revenues

  • A deferred revenue is recognized when cash is received upfront for a product before delivery or for a service before rendering.
  • If the deferred item relates to revenue (cash has been received), it is carried as a liability.
  • An example of a deferred revenue is the monies received for a 12-month magazine subscription.
  • A deferred revenue item involves cash received before the earnings process is complete.
  • Explain the purpose of classifying transactions as either deferred or unearned revenue

• Marginal Revenue and Marginal Cost Relationship for Monopoly Production

  • For monopolies, marginal cost curves are upward sloping and marginal revenues are downward sloping.
  • revenue, and their spending, i.e. costs.
  • The marginal revenue curve for monopolies, however, is quite different than the marginal revenue curve for competitive firms.
  • Production occurs where marginal cost and marginal revenue intersect.
  • Production occurs where marginal cost and marginal revenue intersect.

• The Importance of Timing: Revenue and Expense Recognition

  • Revenue is recognized when earned and payment is assured; expenses are recognized when incurred and the revenue associated with the expense is recognized.
  • The assets produced and sold or services rendered to generate revenue also generate related expenses.
  • Accounting standards require that companies using the accrual basis of accounting and match all expenses with their related revenues for the period, so that the income statement shows the revenues earned and expenses incurred in the correct accounting period.
  • By tying revenues and expenses to the completion of sales and other money generating tasks, the income statement will better reflect what happened in terms of what revenue and expense generating activities during the accounting period.
  • Explain how the timing of expense and revenue recognition affects the financial statements