Revenue Recognition Is Significant Because It Not Essay

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Revenue recognition is significant because it not only defines to the leaders of the company that the product sold is doing well in its markets but also that the price on the product is comparable to the competition - shown through the return of high premiums and that all expenses to make said product are being received through the sale of these products. "Process of recording revenue, under one of the various methods, in the accounting period. In the period of revenue recognition, related expenses should be matched to revenue. The most often used method of recognizing revenue is at the time of sale or rendering of service. The cash basis of revenue recognition is also popular among service businesses. Other methods of revenue recognition include during production and at the completion of production" (Barron's Accounting Dictionary, 2010). Revenue recognition should be offset by the expenses involved in producing the product from materials and labor to all other overhead expenses along with profits that were involved in making said product. The allotted time would depend on those researching the data and could follow the idea of monthly revenue recognition to weekly, depending on what particular information is being monitored and what leaders are hoping to achieve from measuring this information. Determining the expenses for the products before being sold would be one factor of revenue recognition that would support and make sure the company is selling the product for a price that is not only competitive in the markets but also profitable for the company, covering expenses involved in completing the product from start to finish.

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Once the product is sold and compared to the expenses involved or matched with these expenses, then these amounts would be recorded for accounting purposes (Friedlob and Plewa, 1996).

The matching concept related to accounting for revenues and inventory follows the idea that expenses are not accounted for until the product is sold to the end user. "A process in which expenses are recognized in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income (College Accounting Coach, 2006). Accounting for direct expenses involved in producing a product is only measured when the product is sold. Once this step has been achieved then the financial department or those involved with collecting and monitoring these numbers would record them into the income statements or other financial documents, depending on the level of time involved and whether or not the product was matched to said expenses or the timeframe was met. "This principle dictates that when it is reasonable to do so, expenses should be matched with revenues. When expenses are matched with revenues, they are not recognized until the associated revenue is also recognized" (College Accounting Coach, 2006). Inventory revenues would be accounted for in similar methods under the matching concept whereas the product once it is sold would be matched with the expenses incurred to not only produce said product but also expenses involved in keeping said product on the shelf for sale at….....

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