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    diwanrayan's Avatar
    diwanrayan Posts: 10, Reputation: 1
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    #1

    Oct 13, 2009, 07:41 AM
    Revenue Recognition
    Can anyone please help with general rules for revenue recognition in simple words
    hamzashakaa's Avatar
    hamzashakaa Posts: 161, Reputation: 8
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    #2

    Oct 13, 2009, 01:41 PM

    In general revenue should be recoginzed when two conditions are met:
    1) When it is realized or realizable. The revenue is realized when product or service have been exchanged for cash and the revenue is realizable when product or service have been exchanged for assets that are readily convertible into cash.

    (2) When the revenue is earned. That means that the service or the product was rendered to the customer. If the product or service is not rendered to the customer the revenue should not be recognized in the income statement.

    Be aware that there are some exception to this general rule such as using the percentage of completion method. Cost recovery method, or point of production method.
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #3

    Oct 14, 2009, 10:35 PM
    [QUOTE]
    Quote Originally Posted by hamzashakaa View Post
    1) When it is realized or realizable. The revenue is realized when product or service have been exchanged for cash and the revenue is realizable when product or service have been exchanged for assets that are readily convertible into cash.
    In simple words, "readily convertible into cash" means things like accounts receivable, which should be paid in a short period. In other words, you don't have to actually have received the cash for it, but you must have received something of value, or a promise of something of value. A receivable is a promise to pay you in the future. You also have to expect that you'll get it.

    To "realize" means to actually get, so "realizable" is that it can be gotten even though not yet.

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