SSC CGL Exam > SSC CGL Videos > SSC CGL Tier 2 - Study Material, Online Tests, Previous Year > Revenue Recognition (Realisation) Concept
Revenue Recognition (Realisation) Concept Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
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FAQs on Revenue Recognition (Realisation) Concept Video Lecture - SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
| 1. What is the revenue recognition concept? |  |
| 2. Why is revenue recognition important in accounting? | |
Ans. Revenue recognition is crucial in accounting as it affects a company's financial statements and performance evaluation. Accurate and timely recognition of revenue allows stakeholders to assess the company's profitability, financial health, and overall performance. It also ensures consistency and comparability in financial reporting across different entities.
| 3. What are the key principles of revenue recognition? | |
Ans. The key principles of revenue recognition include:
1. Revenue is recognized when it is earned: Revenue should be recognized when the goods are delivered or services are rendered, and the company has substantially fulfilled its obligations.
2. Revenue is recognized when it is realized or realizable: Revenue should be recognized only when it is reasonably certain that the company will receive payment or obtain an economic benefit.
3. Revenue is measured at its fair value: The amount of revenue recognized should represent the fair value of the goods or services exchanged at the time of the transaction.
| 4. How does revenue recognition impact financial statements? | |
Ans. Revenue recognition directly impacts a company's financial statements. It affects the income statement by determining the amount of revenue reported, which ultimately affects the company's profitability. It also impacts the balance sheet by influencing accounts receivable, deferred revenue, and other related accounts. Additionally, revenue recognition affects the statement of cash flows, as it determines the timing of cash inflows from sales.
| 5. What are some common challenges in revenue recognition? | |
Ans. Some common challenges in revenue recognition include:
1. Determining the appropriate timing of revenue recognition, particularly for long-term contracts or projects.
2. Assessing the collectability of revenue and recognizing bad debts.
3. Allocating revenue among different performance obligations in complex transactions.
4. Identifying and accounting for variable consideration, such as discounts, rebates, or performance bonuses.
5. Ensuring compliance with the specific revenue recognition guidelines outlined in accounting standards, such as ASC 606 or IFRS 15.
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