Question

QuickBooks Desktop records revenue when an invoice is generated even though cash has not been received. Is this an acceptable practice? Why or why not

Answer 1

Yes, it is an acceptable practice to recognise revenue when an invoice is generated.

Revenue recognition is an accounting principle and when certain conditions are met revenue should be recognised.It is not necessary to record revenue when cash has been actually received.

According to IFRS revenue should be recognised when ;

a) Risk and rewards of ownership have been transferred from buyer to seller.

b)The seller does not have any control any longer over the goods sold.

c)The collection of payment is reasonably assured.

d)The amount of revenue can be reasonably measured.

e)Costs of revenue can be reasonably measured.

Other accounting standards also provide certain conditions like above to consider recongnition of revenue.

Generation of invoive will be considered as transfer of ownership and hence revenue should be recognised.