Recording Transactions in Compliance with the Accounting Framework

a close up of stacks of coins on a tableRevenue

Measurement of Revenue

Revenue should be measured at the fair value of the consideration received or receivable. An exchange for goods or services of a similar nature and value is not regarded as a transaction that generates revenue. However, exchanges for dissimilar items are regarded as generating revenue.

If the inflow of cash or cash equivalents is deferred, the fair value of the consideration receivable is less than the nominal amount of cash and cash equivalents to be received, and discounting is appropriate. This would occur, for instance, if the seller is providing interest-free credit to the buyer or is charging a below-market rate of interest. Interest must be imputed based on market rates.

Now Read: Financing

Recognition of Revenue

Recognition, as defined in the IASB Framework, means incorporating an item that meets the definition of revenue (above) in the income statement when it meets the following criteria:

  • It is probable that any future economic benefit associated with the item of revenue will flow to the entity, and
  • The amount of revenue can be measured with reliability.

Recording Revenue

Cash Sales
DrBankR10 000,00
CrRevenue/SalesR10 000,00
Credit Sales
DrAccounts ReceivableR5 000,00
CrRevenue/SalesR5 000,00

 

Recognition

 All Is well (Pty) Ltd

 Statement Of Profit & LOSS for the year ended 28 February 2018

Revenue                                                                                            R 15 000

Now Read: Forecasts of Future Results