Revenue Recognition Model Paper

Revenue Recognition Model

Introduction

The revenue recognition principle is vital in accounting since it helps in the determination of an accounting period as well as assessing the types of revenues and expenses that ought to be realized in an accounting period (Collings, 2015). This principle state that revenues are only recognized when they have been earned or when they are recognized or recognizable regardless of whether the cash has been received (Camfferman & Zeff, 2015). This is in contrast to cash accounting where revenues are only recognized when the cash is received irrespective of whether the goods have been sold or not. Under the principle of revenue recognition, cash for goods supplied can either be received earlier or after the obligations have been met (Collings, 2015). Therefore, this model of accounting yields two types of accounts namely; accrued and deferred revenues. Accrued revenues are those that are recognized before he cash is received while deferred revenues are those that are recognized once the cash has been received (Camfferman & Zeff, 2015). The revenue

Besides, it also gives guidance for when costs of fulfilling or acquiring a contract ought to be capitalized as assets in a financial period. The expenses that do not get capitalized as assets are often expensed put as incurred (Collings, 2015). Furthermore, the IFRS 15 also demands for extensive disclosures about the revenues of an organization in order to promote transparency and accountability. In relation to previous revenue recognition models, the IFRS 15 may either cause some revenues to be earlier in some cases and later on others (Skalak et al., 2011). Nevertheless, the most fundamental change of the IFRS was the introduction of a new revenue recognition model; the five-step