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This is a basic question, however, it has got me thinking for a while.
Revenue should be recognised after the risk and rewards are transferred.
Does this have anything to deal with when the invoice is issued?
Like when the invoice is issued then process accounting for it..?
The invoice represents the charge for an obligation that is created by the giving of a service or the transfer of goods.
Until risks and rewards are properly transferred, no invoice should be raised and therefore no accounting should be effected.
When I was a raw junior student accountant a member of the audit team on an audit that we were conducting discovered that the client had been pre-invoicing to a massive extent. That led to a special investigation ancillary service to determine the true extent of the amount pre-invoiced and that value then had to be removed from receivables and revenue
Some of the receivables had actually paid so the entry for them was to reduce revenue and increase current liabilities
I’ve rambled! Have I answered your question?
Yes, to a great extent. Thank you.
So, if risks and rewards are transferred at let’s say, 31 December of the year.
However, invoice is have not been generated due to some operational failure or for some other reason until 2 January.Whether revenue should be recognised on 31 December or on 2 January?
Thank you.
Invoicing in January for a sale made in December? Include the revenue and receivable in the December figures. Date of delivery is the important date
Ok?
@mikelittle said:
Some of the receivables had actually paid so the entry for them was to reduce revenue and increase current liabilitiesBy the way, why to reduce revenue and increase liabilities?
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