Revenue Recognition: The Differences And Similarities With

1025 WordsMay 24, 20175 Pages
Revenue Recognition: The Differences and Similarities with IFRS and GAAP Karen Carpenter Revenue is usually the most significant item reported in a company’s financial statements. With bottom lines and cash flows being very important, not only is the company’s reported revenues significant in dollar buy also in weight and importance to the people or business that are investing in them. Revenue recognition is an accounting principal, through GAAP (Generally accepted accounting principles), that verifies the specific conditions under which revenue is recognized or accounted for. Revenue is recognized when a specific event has occurred. To investors, this is the most important way to see how a company’s performance is. This principal…show more content…
The reason for the new guidelines is to establish the principles to report important information to users of financial statements about the nature, timing, and uncertainty of revenue (FASB). Some of the new guidelines are as follows: to remove inconsistencies and weakness in current revenue standards, provide a more stable procedure for revenue issues and errors, provide more information that can be used for financial statements all the way through disclosures, and simplify the preparation of financial statements. The FASB and IASB have is-sued these new standards in May of 2014, but did made the effective date for FASB December 15, 2017 and for IFRS to begin on January 1, 2018. Recognition of revenue from sales of goods seems to occur more often than recognitions of revenue from any other form under GAAP. Even though IFRS and GAAP consider revenue should be realizable and earned before it is recognized, the IFRS allows recognition when the risks and rewards of ownership have been transferred. This would give the buyer control of the goods. The amount of revenue is reliably understood and the sale would benefit your company. GAAP has special rules for rendering services. Like revenue from product sales, revenue from service transaction should not be recognized until it is earned and realized, or is realizable. Revenue is generally earned and realized, or realizable, when all of the following conditions
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