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Points at which revenue can be recognized can generally be categorised as follows:
SALE OF GOODS
1. Point of sale or delivery Revenue is recognised when the product or service is sold. This is applicable for
most retail, service and manufacturing businesses.
2. When cash is received Revenue is recognised when the collection of cash has taken place. This is used
when there is serious doubt as to whether the cash from the revenue generating transaction can be collected.
3. At some point after cash is received This is applicable where a particular circumstance exists, such as a ‘money back
guarantee’. Revenue is recognised at a point in the future when these circumstances are finalized.
The most commonly used method is at the point of sale or delivery. The most conservative method is if revenue is recognised at some point after cash is received.
RENDERING OF SERVICES
1. During production Revenue is recognised according to the proportion of the project that has been
completed during the year. It is used when a project extends over more than one period. For example, large buildings, roads and ship-building.
2. On completion of production Revenue is recognised at the completion of the project, even when the project
extends over more than one period. As for (1 above), it is used in the construction industry.