Revenue is very crucial element for users of the financial statements in assessing a company´s current performance and future prospects.
For most businesses, income is recognized as revenue when the company delivers the required product or performs its service and receives payment for it. However, there are numerous circumstances in which exceptions may apply. For example, if a company's business has a very extraordinary rate of product returns, revenue should only be recognized after the expiration of return period.
Companies can sometimes mislead users of financial statements with revenue recognition to make their financial statements look better. For example, if ABC Corp. wants to hide the fact that their sales are low in the current year, it may choose to recognize income that has not yet been collected as revenue in order to boost its sales revenue and ultimately profits for the year.Read More