When should revenue be recognised? Are there exceptions to the
Revenue should be recognised when sales take place either in cash
or credit and/or right to receive income from any source is
established. Revenue is not recognised, in case, if the
income or payment is received in advance or the payment is
actually received from the debtors. In a nutshell, revenue will
be recognised when the right to receive income is established.
For example, Mr. A sold goods in January and received payment in
February; then revenue is considered to be recognised in the
month of January and not in February. However, if Mr A received
cash in advance, i.e. in December and goods are sold in January,
then the revenue is recognised in January and not in
The exceptions to this rule are given below.
goods are sold on hire-purchase system , the amount received in
instalments is treated as revenue.
2) Long term construction
long term projects like construction of dams, highways, etc. have
long gestation period. Income is recognised on proportionate
basis of work certified and not on the completion of
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