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ON
INSTITUTE OF MANAGEMENT
D.A.V COLLEGE, CHANDIGARH
ACKNOWLEDGEMENT
The successful completion of any task would be incomplete without mentioning the
names of persons who helped to make it possible. I take this opportunity to express my gratitude
in few words and respect to all those who helped me for the completion of this summer project
Finally, I express our sincere thanks and deep sense of gratitude to my parents and friends
for giving timely advice in all the ways and in all aspects for doing the project.
Shivesh Kuthiala
REVENUE RECOGNITION AND MEASUREMENT
The revenue recognition principle is a cornerstone of accrual accounting together with the
matching principle. They both determine the accounting period, in which revenues and expenses
are recognized. According to the principle, revenues are recognized when they are realized or
realizable, and are earned (usually when goods are transferred or services rendered), no matter
when cash is received. In cash accounting – in contrast – revenues are recognized when cash is
Cash can be received in an earlier or later period than obligations are met (when goods or
services are delivered) and related revenues are recognized that results in the following two types
of accounts:
The Critical-Event Approach: IFRS provides five criteria for identifying the critical event for
1. Risks and rewards have been transferred from the seller to the buyer
The first two criteria mentioned above are referred to as Performance. Performance occurs
when the seller has done most or all of what it is supposed to do to be entitled for the payment.
E.g.: A company has sold the good and the customer walks out of the store with no warranty on
the product. The seller has completed its performance since the buyer now owns good and also
all the risks and rewards associated with it. The third criterion is referred to as Collectability.
The seller must have a reasonable expectation of being paid. An allowance account must be
created if the seller is not fully assured to receive the payment. The fourth and fifth criteria are
referred to as Measurability. Due to Matching Principle, the seller must be able to match
expenses to the revenues they helped in earning. Therefore, the amount of Revenues and
General rule[edit]
Received advances are not recognized as revenues, but as liabilities (deferred income), until the
1. Revenues are realized when cash or claims to cash (receivable) are received in exchange
for goods or services. Revenues are realizable when assets received in such exchange are
2. Revenues are earned when such goods/services are transferred/rendered. Both such
payment assurance and final delivery completion (with a provision for returns, warranty
1. Revenues from selling inventory are recognized at the date of sale often interpreted as the
date of delivery.
2. Revenues from rendering services are recognized when services are completed and billed.
3. Revenue from permission to use company's assets (e.g. interests for using money, rent for
using fixed assets, and royalties for using intangible assets) is recognized as time passes
4. Revenue from selling an asset other than inventory is recognized at the point of sale,
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