Financial Statement Revenue Concept

In a financial statement, revenue denotes a set of accounting rules, which regulate the accounting of the sales-related activities of a company.
In case the revenue of a company is irregular in nature, it anticipates scandals which may occur in the sphere of corporate accounting.

The following activities can be adopted as steps to recognize the nature of company revenues, in order to decrease or avoid fraudulent cases :

Identification of risky revenues: Reporting of revenue does not mislead the investors, only when cash is taken into account. However, the accrual concept of revenue permits the companies to book revenue, prior to the cash receipts. For this, the following two conditions must conform to each other:

The critical earnings event should be completed.

The payment should be measurable in its amount, tallying with that of the buyer, and its final receipt needs to be reasonably guaranteed.

In case of a handful of companies, the process of revenue recording is simple. For some others, it requires the permission of the management.

 

Check against the accumulated cash: The second step towards holding back the accumulated cash is to check the reported revenue against the actual cash amount received from the customers. Calculating the ‘cash received from the clients’ requires comparison between the growth in the accumulated cash to that of the growth in the revenue reported. This procedure also permits the existence of doubtful accounts in some cases.

 

Analyze the organic growth from different revenue sources: The third step to be followed by the investors is to examine the different sources of revenue. This includes recognizing and step-by-step examination of the diverse sources of growth. This helps in the identification of various sources responsible for short-term growths and its distinction from sustainable, organic growths.
In the present business sphere, recognition of revenue forms a significant part of commercial activities. It also requires an in-depth scrutiny of the aggregated restatements of high-profile companies.

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Last Updated on : 26th June 2013