What Is Revenue Recognition?

Revenue recognition refers to the time when revenue is recorded. The recognition of income should solve two problems: one is timing; the other is measurement. Timing refers to when the income is recorded in the book, such as whether the sales of goods (or long-term engineering) are recognized before, during, or after the sale; the measurement refers to the amount of registration, whether the total method or the net Method, the labor service income is based on the percentage of completion method or the contract of completion method.

Revenue recognition

The recognition of income mainly includes the recognition of product sales income and labor service income. It also includes income provided by others using the company s assets, such as

In addition to the recognition of income, it must meet the definitions, quantifiability,

Accounting for revenue recognition of sales of goods

I. Confirmation:

Transfer of major risk rewards;

It mainly controls the transfer of management power.

The related economic benefits are likely to flow into the enterprise.

The amount of income can be reliably measured.

Relevant costs that have occurred or will be incurred can be reliably measured.

2. Measurement: Contract price; NPV.

1. Cash discount: Total price method, incurred and included in "financial expenses".

2. Commercial discount: The discounted amount is included in sales revenue.

3. Sales discount: the "sales income" of the current period is offset.

4. Sales return:

Return "issued goods" back to "inventory goods";

Directly deduct "Revenue and Cost" for the current month, and the corresponding cash discount is reversed together.

Third, special sales:

(1) Consignment-commissions received / deemed buyout (non-underwriting)

1.Business-delivery of goods

Client

Borrow: issue goods

Loan: Stock Merchandise

Trustee

Borrow: Entrusted Sales

Loan: Entrusted sales of goods

2. Business: The commissioned party actually sells the goods, and the commissioned party receives the consignment list.

Client

Borrowing: Accounts Receivable-Trustee

Loan: main business income

Taxes payable-VAT payable (output)

Borrowing: cost of main business

Credit: Issue of goods

Trustee

Borrow: bank deposit

Loan: Accounts payable-client / main business income

Taxes payable-VAT payable (output)

Borrowing: Taxes payable-VAT payable (input) / cost of main business

Loan: Accounts payable / consignment goods

Borrow: Entrusted sales of goods / taxes payable-VAT payable (input)

Loan: consignment of goods / accounts payable-client

3. Business-settlement of payment and handling fees

Client

Borrowing: selling expenses (handling fees)

Credit: Accounts receivable-trustee (handling fee)

Borrow: bank deposit

Credit: Accounts Receivable-Trustee

Trustee

Borrow: Accounts Payable-Client

Loan: bank deposit

Main business income (handling fee)

Example: Party A entrusts Party B to sell 10,000 yuan of goods and pays a handling fee of 10% of the selling price.

1. When receiving consignment items:

Borrow: 10,000 consigned goods, loan: 10,000 consigned goods

2. When selling:

Borrow: bank deposit 11700

Loan: 10,000 consigned goods

Taxes payable-VAT payable (output) 1700

3. After handing the consignment list to the client, I received the VAT invoice from the client:

Borrow: Taxes payable-VAT payable (input) 1700

Credit: Accounts payable 1700

4. Pay the purchase price to the client and settle the commission fee:

Borrow: 10,000 commissioned goods

Accounts payable 1700

Loan: bank deposit 10700

Other business income 1000

(2) Sales of advance receipts

In advance:

Borrow: bank deposit

Loan: advance payment

When the product is delivered:

Borrow: advance payment

Loan: main business income

Taxes payable-VAT payable (output)

When carrying forward costs:

Borrow: cost of main business

Loan: Stock Merchandise

(Three) installment sales

When the product is delivered:

Borrow: long-term receivables

Loan: main business income

Unrealized financing income

Borrow: cost of main business

Loan: Stock Merchandise

Borrow: Business taxes and surcharges

Loan: Taxes payable-consumption tax payable

When receiving payment in each period:

Borrow: bank deposit

Loans: long-term receivables

Calculate and confirm each period of interest income

Borrow: Unrealized financing income

Loan: financial expenses

(IV) Sales of commodities subject to conditions for return of sales

1.General accounting processing when the probability of return can be predicted

When the product is delivered:

Borrow: Accounts receivable

Loan: main business income

Taxes payable-VAT payable (output)

Borrow: cost of main business

Loan: Stock Merchandise

Confirmation of estimated sales returns at the end of the period

Borrow: main business income

Loan: Cost of Main Business

Other payables

When payment is received

Borrow: bank deposit

Credit: Accounts receivable

Actual withdrawal = expected / actual withdrawal

Borrow: Stock items

Taxes payableVAT payable (output) / [main business cost]

Other payables

Loan: bank deposit / [main business income]

2.General account processing when the probability of return cannot be predicted

When the product is delivered:

Borrow: issue goods

Loan: Stock Merchandise

Borrow: Accounts receivable

Credit: Taxes payable-VAT payable (output)

When payment is received:

Borrow: bank deposit

Credit: Accounts receivable

Advance payment

When no return occurs after the return period:

Borrow: advance payment

Loan: main business income

Borrow: cost of main business

Credit: Issue of goods

When the return period expires

Borrow: advance payment

Taxes payable-VAT payable (output)

Loan: main business income

Bank savings

Borrow: cost of main business

Stock items

Credit: Issue of goods

(5) After-sale repurchase

When selling:

Borrow: bank deposit (total price and tax)

Credit: Taxes payable-VAT payable (output)

Other payables (sale price)

Borrow: issue goods

Loan: Stock Merchandise

The difference between the selling price and the repurchase price is averagely included in the "financial expenses" of each period:

Borrow: financial expenses

Credit: Other payables

When buying back:

Borrow: Inventory goods (total price and tax)

Credit: Issue of goods

Borrow: other payables

Taxes payable-VAT payable (input)

Loan: bank deposit

(6) Sale and leaseback (taking fixed assets as an example)

Borrowing: liquidation of fixed assets

Accumulated depreciation

Loan: Fixed assets

Borrow: bank deposit

Loan: liquidation of fixed assets

Borrowing: liquidation of fixed assets

Loan: Deferred income

At the time of loss, the opposite is true.

(Assignment period) When forming a financial lease:

Borrowing: deferred income

Loan: various depreciation expenses

At the time of loss, the opposite is true.

(7) Trade in old for new.

The purchase price of the old product cannot be used to offset the sale price of the new product, and it must be reflected as two transactions.

Financial treatment of labor income

I. General account processing

When labor costs occur

Borrow: labor costs

Loan: payable to employees

When advance payment of labor services

Borrow: bank deposit

Loan: advance payment

When confirming revenue and costs

Borrow: advance payment

Loan: main business income

Borrow: cost of main business

Loan: labor costs

2. The situation that the results of the labor service transaction cannot be estimated reliably (if the money cannot be recovered can be estimated reliably, it should be handled as follows)

Revenue recognition based on the recoverable price;

Expenditure recognition based on actual labor service costs;

The difference between the two is used as the current loss determination.

3. Simultaneous sales of goods and provision of labor services.

4. Confirmation of special labor income (recognition time)

(I) Installation fee income:

If it is separate from the sales of goods, revenue will be recognized at the end of the year based on the completion of the installation;

If it is part of the income of the goods, the income shall be recognized at the same time as the goods sold.

(2) Commission income:

Commission income from publicity media: revenue should be recognized when the advertisement is made public;

Revenue from advertising commissions: revenue is recognized based on the degree of completion of the project.

(3) Revenue from customized software: Revenue should be recognized on the balance sheet date using the percentage of completion method.

(IV) Service fee income included in the sale price of goods: when the sale of goods is realized, the sale of goods income shall be recognized at the balance of the sale price after deducting the service fee, and the service fee shall be recognized as income during the period in which the service fee is deferred until the service is provided.

(5) Charges for art performances, banquets and other special events are believed to be income when related events occur.

(6) Application fee and membership fee income:

One-off, income is recognized when the payment is received;

For instalment services, the income is recognized in installments when the service is included in the "deferred income" when the payment is received.

(7) Revenue from royalties:

The follow-up service shall be recognized in installments when the service is provided;

The provision of equipment and tangible assets shall be recognized when the ownership of the assets is transferred.

(8) Periodic charges: Revenue shall be recognized on the date of collection as agreed in the contract.

Accounting for income from transfer of asset use rights

I. Interest income:

An enterprise shall, on the balance sheet date, calculate and determine the amount of interest income according to the time when others use the company's monetary funds and the actual interest rate.

2. Royalty revenue:

If the payment is made once and no later-stage services are provided, the sales of the asset shall be deemed as one-time recognition of revenue.

If one payment is required to provide subsequent services, revenue shall be recognized in installments within the validity period stipulated in the contract agreement.

Payment by installments, and the income shall be recognized in installments according to the time and amount of the collection as stipulated in the contract agreement or the charging method prescribed in the contract agreement.

Accounting for revenue from construction contracts

I. Composition of contract revenue and conditions for recognition of contract change revenue

(1) Composition of contract revenue:

Contract's initial income

Sporadic revenue related to the contract shall not be regarded as contract revenue if it is formed due to contract changes, claims, rewards, etc.

(2) Recognition conditions for contract change income:

The client can recognize the increased income due to changes, claims and rewards;

Revenue can be reliably measured.

Composition and accounting treatment of contract costs

(1) Composition of contract costs:

direct costs;

Indirect costs.

(2) Accounting treatment of contract costs:

Direct costs are directly included in contract costs when incurred;

Indirect costs are apportioned into contract costs at the end of the period in a systematic and reasonable manner;

The contract cost allocation methods include labor cost ratio method and direct cost ratio method.

(3) There are a few points to note when calculating contract costs:

The sporadic revenue related to the contract is not regarded as contract revenue, but directly deducts contract costs.

The following expenses are not included in the contract costs, but are directly included in the current profit and loss as period expenses:

A. The administrative expenses incurred by the enterprise administrative department to organize and manage the production and operation activities;

B. Selling expenses of shipbuilding and other manufacturing enterprises;

C. Financial expenses incurred by the enterprise as a result of raising funds required for production and operation;

D. Relevant expenses incurred due to the conclusion of the contract (such as travel expenses, bidding expenses, etc., are included in the current management expenses).

Recognition of contract revenue and expenses

(I) Confirmation principle:

Principles of confirmation of fixed cost contracts (when the following elements can be reliable, the percentage of completion method is used.)

A. Revenue can be reliably measured;

B. The economic benefits related to the contract can flow into the enterprise;

C. On the balance sheet date, the progress of the contract completion and the costs incurred for the contract can be reliably determined;

D. The contract costs incurred to complete the contract can be clearly distinguished and reliably measured.

Confirmation principle of cost plus contract (when the results of the following elements can be reliably estimated, the percentage of completion method is used.)

A. The economic benefits related to the contract can flow into the enterprise;

B. The contract costs incurred to complete the contract can be clearly distinguished and reliably measured.

Determining the completion progress

A. The cumulative contract costs incurred as a percentage of the estimated total contract costs;

B. The proportion of completed contract work to the estimated total contract work;

C. Measurement of completed contract work.

(II) Special circumstances: If the above factors cannot be estimated reliably (the unreliable estimation mentioned here mainly refers to whether the money can be recovered and cannot be estimated reliably), the following should be handled:

Revenue recognition based on the recoverable price;

Expenditure recognition based on actual labor service costs;

The difference between the two is used as the current loss determination.

(Three) the calculation method of the percentage of completion method

Confirmed contract revenue for the current period = (total contract revenue x completion progress)-accumulated revenue recognized in previous periods;

Gross profit recognized in the current period = (Total contract revenue-Estimated total contract cost) × Completion progress-Accumulated gross profit recognized in previous periods;

Contract costs recognized in the current period = Contract revenue recognized in the current period-Contract gross profit recognized in the current period-Estimated loss provisions in previous periods.

Note: In the calculation of the contract revenue and contract gross profit in the last year, it should be dealt with in an inverse way to avoid errors. The specific calculation formula is as follows:

Contract revenue for the last year = total revenue-revenue recognized in previous years;

Contract gross profit in the last year = total revenue-actual contract total cost-cumulative gross profit recognized in previous years.

Fourth, account processing

Contract costs incurred during registration

Borrow: construction

Loans: raw materials, payable employees, accumulated depreciation, etc.

Note: When A incurs expenses

Borrow: Engineering construction-indirect costs

Loans: bank deposits, etc.

B Indirect costs allocated to contract costs

Borrow: Engineering Construction-*** Contract

Loan: Engineering Construction-Indirect Costs

Register the settlement contract price

Borrow: Accounts receivable

Credit: Engineering settlement

Register the actual contract price received

Borrow: bank deposit

Credit: Accounts receivable

Confirm and measure the income and expenses of the current year, and record them

Borrow: Main Business Cost / Engineering Construction-Gross Profit]

Loan: main business income

When "Project Construction-Gross Profit" is the lender:

Borrow: asset impairment losses-estimated contract losses

Loan: Provision for inventory depreciation-provision for expected losses

Annual project completion

Borrow: cost of main business

Provision for inventory depreciation-provision for expected loss / construction construction-gross profit]

Loan: main business income

When completed:

Borrow: project settlement

Loan: Engineering construction, engineering construction-gross profit

Description: Project construction:

Actual consumption cost + Engineering gross profit

Project settlement: contractual receipts