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When accounting for costs and revenues, it is vital to recognize the date when the goods are rendered. To ensure that the information is sufficiently analytical, it must be checked in advance to ensure that it meets current requirements: comparability, unambiguity of interpretation, reliability, clarity, and relevance. However, students are used to the fact that fees and payments should be accounted for immediately, without keeping the delivery of the goods in mind. Revenue recognition is a more complex subject, where a few steps must be taken. If the student forgets to account for the delivery date of the goods or/and cash inflow from a previous period, then the period numbers will be wrongly calculated.
The concept makes this seem much simpler to me after reading about it. As with every other subject and notion we learn about, there are standards and steps to follow. Revenue recognition clearly explains that companies’ sales are acknowledged when the service or product is delivered to the customer (Reimers, 2011). Therefore, it is coring the importance whether the revenue inflow is calculated when each performance obligation is satisfied. It is necessary to recognize each transaction as a separate unit, from when the contract is entered into when the goods are delivered to the customer (Tuovila, 2022). By accounting for each transaction separately, revenue recognition becomes more uncomplicated and more straightforward to follow. The concept makes this distinction very clear. It would be challenging to understand if the revenue recognition notion did not point out the importance of distinguishing the cash inflow for when each transaction is obligated. The straightforward steps and distinction of each revenue stream make the concept of revenue recognition easier to understand.
References
Reimers, J.L. (2011). Financial Accounting: A Business Process Approach (3rd ed). Pearson.
Tuovila, A. (2022). Revenue Recognition: What It Means in Accounting and the 5 Steps. Investopedia. Web.
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