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Aim vs. Oum: Revenue Recognition

This document outlines the key steps in a typical business system implementation project including project management, requirements analysis, design, implementation, testing, and transition to operations. It also describes the revenue recognition principle of accounting, which states that revenue is recognized when it is realized or realizable and earned, such as when goods are delivered or services performed. Revenue recognition involves creating general ledger entries to record income earned from work completed or services rendered, even if invoices have not yet been issued to customers. This provides a more accurate picture of a company's financial performance and status in its income statements and balance sheets.

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72 views3 pages

Aim vs. Oum: Revenue Recognition

This document outlines the key steps in a typical business system implementation project including project management, requirements analysis, design, implementation, testing, and transition to operations. It also describes the revenue recognition principle of accounting, which states that revenue is recognized when it is realized or realizable and earned, such as when goods are delivered or services performed. Revenue recognition involves creating general ledger entries to record income earned from work completed or services rendered, even if invoices have not yet been issued to customers. This provides a more accurate picture of a company's financial performance and status in its income statements and balance sheets.

Uploaded by

balajiciv
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

1.

Project Management
2. Business Process architecture
3. Business Requirement Definition
4. Business requirement definition
5. Application & technical architecture
6. Module Design & Build
7. Data Conversion
8. Documentation
9. Business System Testing
10. Performance Testing
11. Adoption & Learning
12. Production migration
1. Business Requirements
2. Requirements Analysis
3. Analysis
4. Design
5. Implementation
6. Testing
7. Performance Management
8. Technical Architecture
9. Data Acquisition and Conversion
10. Documentation
11. Organizational Change Management
12. Training
13. Transition
14. Operations and Support


AIM vs. OUM

Revenue Recognition:
Revenue Recognition principle is one of the important principles of Accrual Accounting.
According to this principle, revenue must be recognized when
(1) They are realized or realizable and
(2) They are earned
Revenue is realized when products are exchanged for cash or claims to cash (Receivable).
Revenue is realizable when related assets received are readily convertible to cash or claims to
cash.
Revenue is earned when the products are delivered or services are performed.
Recognizing the revenue means recording the amount as revenue in the financial statements.
Realization is the process of converting non-cash resources into cash.
In the Revenue Recognition principle, it does not matter when cash is received. (In Cash Basis
Accounting, revenue is recognized when cash is received no matter when goods or services are
sold).
For revenue to be recognized, both the above conditions must be met. In other words for
revenue to be recognized, final delivery must be completed (of goods or services) and there has
to be a payment assurance.
Let us have a look at the timing of Revenue Recognition
1) For sale of finished goods (Inventory Items), revenue is recognized at the date of sale (some
interpret this as the date of shipping or the date of delivery)
2) For sale of services (e.g. support services), revenue is recognized when the services are
performed (delivered)
3) For sale of Asset Items (other than inventory items like finished goods), revenue is
recognized at the point of sale (i.e. when the customer is invoiced)
4) For revenue from other activities like rent for using companys Fixed Assets, revenue is
recognized as time passes or as assets are used.
Revenue Recognition is the accounting rule that defines revenue as an inflow of assets,
not necessarily cash, in exchange for goods or services and requires the revenue to be
recognized at the time, but not before, it is earned. You use revenue recognition to
create G/L entries for income without generating invoices.
Generally, you use revenue recognition when:
Work is finished and you have earned the income, but you do not need to bill a
customer
You want income statements and balance sheets to reflect the amounts earned
for a realistic picture of the company's financial status
You need to reallocate internal costs
To calculate revenue (actual or accrued) for the current period, you must create journal
entries. The amounts related to these entries appear on your income statements and
balance sheets when you complete the revenue recognition process. You use the
recognized revenue amounts for projections and to review the profitability or liability of
specific departments in your organization.
Revenue recognition consists of the following tasks:
Understand revenue recognition
Generate preliminary G/L journal entries
Work with G/L batches

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