Question

In service companies, revenue is recognized either at a point in time, or over time. Compare and contrast the rules for recognizing revenue under these two circumstances. please answer in your own words. do not use outside resources.

Answer 1

As per revenue recognition concept the revenue should be recognised in income statement based on when service in rendered. If the service is rendered at point in time the service revenue should be recognised immediately. If service is rendered over a period of time, service revenue should be recognised in the period in which service is rendered.

For example, assume a company is collecting revenue from customer in advance in form of subscription. The first month service revenue is accounted immediately. The balance service revenue should be recognised in income statement over the period of subscription. The revenue recognition concept is in line with accrual concept as per which revenue is recognised when service is rendered and not when payments are received.