Unit 10Revenue,Expense&Profit
Unit 10 Revenue, Expense & Profit
IRevenue口Revenues arecashinflows or otherenhancements of assets of an entity orsettlement of its liabilities or a combination ofboth in the normal operation of businessactivities Thoseinflows result in increases in equityotherthan increases relating to contributionsfrom equity participants2
2 ⅠRevenue Revenues are cash inflows or other enhancements of assets of an entity or settlement of its liabilities or a combination of both in the normal operation of business activities. Those inflows result in increases in equity, other than increases relating to contributions from equity participants
Revenue includes only the gross inflows of三economicbenefitsreceived and receivablebytheentity on itsownaccount Amounts collected on behalf of third partiessuchas sales taxes,goods and services taxes and valueaddedtaxes arenot economicbenefits whichflowto the entity and do not result in increases inequity.They are excluded from revenue.3
3 Revenue includes only the gross inflows of economic benefits received and receivable by the entity on its own account. Amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes are not economic benefits which flow to the entity and do not result in increases in equity. They are excluded from revenue
Recognition ofrevenue门Revenue Recognition Principle:Revenues are recognized when they arerealized or realizable,and are earned (usuallywhen goods are transferred or servicesrendered),no matter when cash is received口Amount:Revenue shall be measured atthefair value oftheconsiderationreceived orreceivable4
4 Recognition of revenue Revenue Recognition 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 Amount: Revenue shall be measured at the fair value of the consideration received or receivable
Saleofgoods口Revenue from the sale of goods shallbe recognizedwhen all the following conditionshave been satisfied(a)the entityhas transferred to the buyer the significantrisksand rewards of ownership of the goods;(b)theentity retains neithercontinuing managerialinvolvement to the degree usually associated withownership nor effectivecontroloverthegoods sold;(c) the amount of revenue can be measured reliably;(d)it is probablethat the economic benefits associatedwith the transaction will flow tothe entity; and(e)the costs incurred or tobe incurred in respect of thetransaction can be measured reliably5
5 Sale of goods Revenue from the sale of goods shall be recognized when all the following conditions have been satisfied: (a) the entity has transferred to the buyer the significant risks and rewards of ownership of the goods; (b) the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (c) the amount of revenue can be measured reliably; (d) it is probable that the economic benefits associated with the transaction will flow to the entity; and (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably
Revenuefrom sale of goods(1)Cashsale口Dr.CashCr.Salesrevenue6
6 Revenue from sale of goods (1)Cash sale Dr. Cash Cr. Sales revenue
(2)CreditsaleDrAccountsReceivableCr.Salesrevenue口Dr.CashSalesDiscountCrAccountsReceivable7
7 Dr. Accounts Receivable Cr. Sales revenue (2)Credit sale Dr. Cash Sales Discount Cr. Accounts Receivable
(2)Creditsale口Dr.BadDebtExpenseCr.ProvisionforBadDebts8
8 (2)Credit sale Dr. Bad Debt Expense Cr. Provision for Bad Debts
Renderingof servicesRevenue from services may be recognized when the serviceis actually completed.口When the outcome of a transaction involving the renderingof services can beestimated reliably,revenue associatedwith the transaction shall be recognized by reference to thestage of completion of the transaction at the end of thereporting period.口Whenthe outcome of the transaction involving therendering of services cannot be estimated reliably, revenueshall be recognized onlytotheextent of the expensesrecognizedthat arerecoverable9
9 Rendering of services Revenue from services may be recognized when the service is actually completed. When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognized by reference to the stage of completion of the transaction at the end of the reporting period. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognized only to the extent of the expenses recognized that are recoverable
Theoutcome of atransaction canbe estimatedreliably when all the following conditions aresatisfied:(a)the amount of revenue can be measured reliably(b)itis probablethatthe economic benefitsassociatedwith the transaction will flow to the entity;(c)the stage of completion of thetransactionat theend ofthe reporting period can be measured reliably, and(d)thecosts incurredforthetransactionandthecoststocompletethetransactioncanbemeasured reliably10
10 The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: (a) the amount of revenue can be measured reliably; (b) it is probable that the economic benefits associated with the transaction will flow to the entity; (c) the stage of completion of the transaction at the end of the reporting period can be measured reliably; and (d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably