This is a small article giving some theoritical insights on Revenue Recognition in Oracle Applications R12.
When should Revenue be Recognized
1) When it is earned.
2) When it is Realized or becomes Realizable
What do you mean by Recognizing Revenue?
When you record the amount in the financial statement you recognize revenue. You record the amount as Revenue in the P&L. You do this once final delivery of goods and services is completed and the amount is recognizable.
However in Cash basis accounting you will only recognize revenue when you receive cash for the goods and services delivered.
When is Revenue Realized?
When product or services are exchanged for cash or other assets or claims (Receivables)
When is Revenue Realizable?
When related assets or claims are readily convertible to cash revenue is said to be realizable
When is Revenue Earned?
Revenue becomes earned when products are delivered or services are performed/done.
Timing of Revenue Recognition examples
- For sale of finished goods (Inventory Items), revenue is recognized at the date of sale (some interpret this as the date of shipping or the date of delivery)
- For sale of services (e.g. support services), revenue is recognized when the services are performed (delivered)
- For sale of Asset Items (other than inventory items like finished goods), revenue is recognized at the point of sale (i.e. when the customer is invoiced)
- For revenue from other activities like rent for using company’s Fixed Assets, revenue is recognized as time passes or as assets are used.