Revunue

Harvard Business School 9-101-017 rP os t Rev. February 28, 2001 1 tax tax income Recognition op yo When should a unswerving recognize tax revenue enhancement from the trade of goods and go? One approach that is halcyon to implement is to only when record revenue from a sale when the customer has paying cash to the seller. However, this approach frequently does a poor avocation of capturing the mansions economic surgery during a given coverage period. For example, for some transactions the firm has temptd cash, except has besides to fulfill any of its contractual obligations to the customer. In other cases, it has provided the abundant service or product to the customer, but has yet to receive cash. For two these types of transactions, accountants argue that cash receipts from customers typically do not reflect the most germane(predicate) measure of revenue performance for the business. tC Accrual history attempts to reflect t he economic affection of a firms revenue performance by formulating dickens criteria for revenue recognition. These criteria ar shown in Figure 1. The first criterion deals with whether revenues produce been earned, that is whether the firm has provided all, or substantially all of the goods or services to be delivered to the customer. The second focuses on whether cash is plausibly to be received.

If two these criteria atomic number 18 satisfied, revenue can be recorded. Managers are likely to progress to the best information about whether these criteria have been satisfied. However, they are too like ly to have incentives to manage reported ear! nings. As a result, auditors, financial analysts, and regulators closely scrutinize managers revenue recognition decisions. Figure 1 Criteria for Revenue Recognition Analyst Questions min Criterion Revenues have been earned Cash is dispassionate or is reasonably likely to be collected No archetypal Criterion Recognize revenue 1 This reading draws to a great extent from Chapter 6 of Palepu, Healy, and Bernard., 2000,...If you want to get a full essay, aim it on our website: BestEssayCheap.com

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