What is GAAP revenue?

Generally accepted accounting principles or GAAP relate to a set of US accounting standards set by the Council for Financial Accounting Standards. Regarding GAAP's revenue, it is a set of standardized rules dealing with how and when revenues are recorded in organizational accounting. According to the GAAP, the revenue must meet certain standards before they are recorded and listed in the financial statements, which is a process known as revenue recognition. First, before GAAP revenue can be recognized, income must be realized or feasible. Realized means that cash has been received while implementable means that a promise has been received. Furthermore, the income must be obtained, which means that the organization offered something in return for income, such as a product or service. Both qualifying criteria must be met before the organization can recognize the income and record them on the financial statements as income.

Rules for confession of GAAP revenue usually apply to an acrual purposeethnic, rather than on accounting of cash bases. Acrual accounting of transactions as they occur, regardless of when cash is exchanged. For example, when the pharmacy supplies medicines to the patient, the pharmacy gets income, even if the company has to wait for the patient to pay the insurance company. Likewise, the pharmacy will create expenses for drug supply, although the pharmacy has not yet paid an invoice for the supply of drugs.

According to GAAP revenue standards, the company cannot record income until the transaction is transaction and income is not officially obtained. In other words, the pharmacy in the previous example cannot notice the revenue of completing the regulation until the patient fails the transaction by picking up the order. If an automatic refill program participates, for example, the pharmacy cannot record income from future transactions until each regulation is fulfilled and given to the patient.

although the rules for recognitionGAAP income may seem simple, many transactions do not include a clear point of revenue. Franchise fees, detention contracts, billing and ordering of orders and other transactions can easily conceal the point in which the organization is able to recognize generated income. While the GAAP rules should be flexible to meet the needs of various business models, ambiguity led to an incorrect interpretation of the spirit of the rules.

At the end of the 90s. Many significant cases concerning publicly traded companies have been reported that incorrectly used the rules to recognize GAAP income to inflate income statements. As such, the Board of Directors of Financial Accounting has developed a number of specialized rules for handling in an effort to prior, or excessive income statement. In addition, the Securities and Exchange Commission has helped adopt various laws to regulate the accuracy of financial statements and managerial liability regarding the recognition of income.