Financial Accounting

    • Receivable is the amount owed to the firm by its customers as a result of delivering goods or services and of extending credit in the ordinary course of business.
    • The different methods of revenue recognition to reflects the true financial position are:

     

    • Conversation Concept:  This concept has two components
    1. Recognition of revenue when it is reasonably certain.
    2. Recognition of expenses as soon as they are reasonably possible.
    • Under this concept, Revenue from the sale of the goods is recognized in the period in which goods were delivered to customers.
    • Revenue from the performance of services is recognized in the period in which the services have been performed.
    • The Realization Concept: The realization concepts states that the amount recognized revenue is the amount that is equal to or reasonably certain to be realized. The amount of revenue recognition under this concept is definitely order less than the actual selling price of goods and services period.
    • The Matching Concept: Under this concept the items for which revenues are recognized both by conservatism concept and realization concept are identified and the cost of such items are also accounted for in the same period as that of accounting for revenues.
    • Accounting standard (AS-9) on Revenue recognition.
    • Revenue from the sale of goods should be recognized when the following conditions have as been fulfilled.
    1. The seller of the goods has transferred to the buyer the property in the goods for a price, or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods to a degree usually associated with ownership.
    2. No significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of goods.
    3. It is reasonable t expect ultimate collection of the consideration.
    • Revenue from services should be recognized only when
    1. No significant uncertainties exist regarding the amount of consideration that will be derived from the rendering of services.
    2. It is reasonable to expect that the ultimate collection of consideration.
    • Revenue recognition in the case of use of enterprise resources by others.
    1. Interest – on a time proportion basis taking into account the principle outstanding.
    2. Royalties – on accrual basis in accordance with terms of agreement.
    3. Dividends – only when the owner’s right to receive payment is established normally after approval in general meeting.