Revenues and Monetary Assets
CHAPTER 5
REVENUES AND MONETARY ASSETS
Chapter 5 is about Revenue Recognition and Monetary Assets. There are different criteria used in recognizing revenue depending on the standards the company is using. In general, revenues should be recognized when an entity has significantly performed what is required in the agreement, full ownership of goods is transferred, and services are rendered.
The Securities and Exchange Commission (SEC) have identified fraudulent cases where the companies are reporting fictitious revenues, inappropriate revenues not part of the company’s operations, etc. As a result of fraudulent acts, governing bodies have adopted standards having a more detailed definition of when to recognize revenue. This also considers when to recognize revenues for different types of transaction such as consignment-type transactions, service type transactions, and delivery type transactions.
As an investor, I would want to invest in a company where I can assure that it is earning and will continue to earn more in the future. If the company is not reporting its revenues correctly then I will not be able to value that company correctly and I may lose what I have invested. As a creditor looking at the incorrect revenues, I might think that the company has all the capacity to pay for their debts when they might not be earning at all. Gladly there are governing bodies to audit companies and make sure that true revenue values are reported.
A bad debt by definition is an amount that is written off by the business as a loss to the business and classified as an expense because the debt owed to the business cannot be collected. When a seller makes a sale, there is no sure way of identifying who among the different customers will never pay the bill. An estimate of bad debt has to be made and records have to be adjusted so as to make sure that revenue recognized is overstated. Overstatement of revenue is one of the causes of most accounting
REVENUES AND MONETARY ASSETS
Chapter 5 is about Revenue Recognition and Monetary Assets. There are different criteria used in recognizing revenue depending on the standards the company is using. In general, revenues should be recognized when an entity has significantly performed what is required in the agreement, full ownership of goods is transferred, and services are rendered.
The Securities and Exchange Commission (SEC) have identified fraudulent cases where the companies are reporting fictitious revenues, inappropriate revenues not part of the company’s operations, etc. As a result of fraudulent acts, governing bodies have adopted standards having a more detailed definition of when to recognize revenue. This also considers when to recognize revenues for different types of transaction such as consignment-type transactions, service type transactions, and delivery type transactions.
As an investor, I would want to invest in a company where I can assure that it is earning and will continue to earn more in the future. If the company is not reporting its revenues correctly then I will not be able to value that company correctly and I may lose what I have invested. As a creditor looking at the incorrect revenues, I might think that the company has all the capacity to pay for their debts when they might not be earning at all. Gladly there are governing bodies to audit companies and make sure that true revenue values are reported.
A bad debt by definition is an amount that is written off by the business as a loss to the business and classified as an expense because the debt owed to the business cannot be collected. When a seller makes a sale, there is no sure way of identifying who among the different customers will never pay the bill. An estimate of bad debt has to be made and records have to be adjusted so as to make sure that revenue recognized is overstated. Overstatement of revenue is one of the causes of most accounting