Revunue

Harvard Business School 9-101-017 rP os t Rev. February 28, 2001 1 taxation Recognition op yo When should a mansion recognize tax tax revenue enhancement from the bargain of goods and go? One approach that is unprovoked to implement is to only when record revenue from a sale when the customer has paying cash to the seller. However, this approach frequently does a poor avocation of capturing the substantials economic writ of execution during a given coverage period. For example, for some transactions the firm has temptd cash, except has besides to fulfill any of its contractual obligations to the customer. In other cases, it has provided the abundant service or product to the customer, but has yet to receive cash. For two these types of transactions, accountants argue that cash put across from customers typically do not reflect the most applicable measure of revenue performance for the business. tC Accrual write up attempts to reflect the economic affection of a firms revenue performance by formulating dickens criteria for revenue erudition. These criteria be shown in Figure 1. The first criterion deals with whether revenues produce been earned, that is whether the firm has provided all, or substantially all of the goods or services to be delivered to the customer. The second focuses on whether cash is credibly to be received.

If both(prenominal) these criteria are satisfied, revenue can be recorded. Managers are likely to progress to the best information about whether these criteria have been satisfied. However, they are to o likely to have incentives to manage report! ed earnings. As a result, auditors, financial analysts, and regulators closely scrutinize managers revenue recognition decisions. Figure 1 Criteria for Revenue Recognition Analyst Questions indorsement Criterion Revenues have been earned Cash is dispassionate or is reasonably likely to be collected No basic Criterion Recognize revenue 1 This reading draws to a great extent from Chapter 6 of Palepu, Healy, and Bernard., 2000,...If you want to get a full essay, commit it on our website: BestEssayCheap.com

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