Under the accrual basis of accounting, revenue is recognized when it\u2019s earned. That\u2019s the fundamental in short when it comes to accounting for revenue in a business that\u2019s using accrual basis of accounting. A fundamental which has a little exception in the form that if you\u2019ve got serious doubt you\u2019ll receive money for the sale, you should account for it only when the money is received. But that\u2019s an exception. <\/p>\n
Generally speaking making a sale in June means you account for the sale in June and not July when your client pays their debt. As long as they\u2019ve not paid, it\u2019s a receivable balance on your balance sheet and revenue earned in June on your income statement. Now considering this exception we mentioned above you may ask why it\u2019s so. Why take up receivable balances when you could just account for the sale when the money is received? I could ask you in return if you\u2019re interested in giving away things. Because that\u2019s what is going to happen if you\u2019re not taking up a receivable \u2013 how will you know to whom you\u2019ve given away your goods? Okay, you keep a separate record. Why not keep it as a receivable balance then? On a more meaningful note, wouldn\u2019t you want to show your earnings as soon as possible rather than later? More importantly, wouldn\u2019t you want to show the revenue in the same period you actually made the sale?<\/p>\n
Matter of fact is that in accounting it\u2019s required to show the revenue in the period it\u2019s earned. One of the reasons is that you also gave away something for the sale to happen and this expense is already in the period you made the sale so to keep income and expense in the same period you must account for the sale just as well.<\/p>\n","protected":false},"excerpt":{"rendered":"
Under the accrual basis of accounting, revenue is recognized when it\u2019s earned. That\u2019s the fundamental in short when it comes to accounting for revenue in a business that\u2019s using accrual basis of accounting. A fundamental which has a little exception in the form that if you\u2019ve got serious doubt you\u2019ll receive money for the sale, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,39],"tags":[],"class_list":["post-3488","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-11-revenue"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3488","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=3488"}],"version-history":[{"count":3,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3488\/revisions"}],"predecessor-version":[{"id":3491,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3488\/revisions\/3491"}],"wp:attachment":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=3488"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=3488"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=3488"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}