Revenue and expenses, related to the same transaction or event, are recognized simultaneously. This process is commonly referred to as the matching of expenses with revenues. Expenses, together with warranties and other costs to be incurred upon delivery of the goods, may be reliably measured when the other conditions for revenue recognition have been met.
However, revenue may not be recognized when the related expenses cannot be measured reliably; in such cases, any consideration already received for the sale of the goods is recorded as a liability.
A theoretical interpretation of the rendering of services establishes that when the outcome of a transaction involving the rendering of services can be estimated reliably, the revenue associated with the transaction should be recognized, considering the stage of completion of the transaction at the balance sheet date.
The outcome of a transaction can be reliably estimated when all of the following conditions are met: the amount of the change can be measured reliably, it is probable that the economic benefits arising from the transaction will flow to the entity, the stage of completion of the transaction at the balance sheet date can be measured reliably.
Likewise, the costs already incurred in the transaction, as well as those yet to be incurred to complete the transaction, can be measured reliably, therefore, the recognition of revenue by reference to the stage of completion of a transaction is commonly referred to as the percentage-of-completion method. Under this method, revenue is recognized in the years in which the service is rendered.
Acquiring financial education is essential. If our expenses are more than our income then our life becomes a little difficult as we try to earn more income.
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