REVENUE FROM CONTRACT
WITH CUSTOMERS
In any business revenue is the most important aspect in the financial statements. revenue is mainly
used to measure the profitability of the company. revenue is made in terms of IFRS 15 this is a
universal standard or law that is used by many countries. the reason why there is a universal law it is
because revenue is based on estimates and since it is based on estimates it is easy to manipulate
revenue. this standard IFRS-15 ensures that there is no such manipulation to revenue.
DEFINITION
revenue IS s an income
arising from the ordinary activities of the entity
Income is defined as
an increase in assets or decrease in liabilities
resulting in increase in equity
other than contributions from holders of equity claims (those are shareholders)
There are five steps to revenue
Identify the contract with the customer
identify the separate performance obligations in the contract
determine the transaction price
allocate the transaction price
recognize revenue when a performance application is satisfied.
You must be wondering what a performance obligation
performance obligation Are promises to transfer goods or services/ bundles that is distinct.
, it is also imperative/ important dance with define what is a contract asset, contract liability as well as
receivables.
IF RECEIVED IN CASH
DR CASH
CR REVENUE(I)
(REVENUE RECOGNITION)
the issue arises when we have not yet been paid. that is when we need to go back to our definition
of a contract assets and contract liability as well as trade receivables. remember that it is only
contract assets as well as trade receivables when the amount of consideration has not yet been paid
(received from the customer. if we have satisfied some performance obligations but we have not yet
been paid we will recognize it as a contract asset. if we have satisfied all our performance
obligations but we have not yet been paid then we are going to go to trade receivables that is the
only difference that arises with between a contract asset as well as trade receivables assets.
contracts assets
It is defined as an entity's right to consideration
in exchange for goods or services that is the ENTITY has transferred to a customer
When that is right is conditional on something rather than the passage of time.
the above definition can be confusing, I will simplify what it means. it contracts assets means
that we have satisfied some performance obligations but not all as per contract and you
have not yet been paid. (REMEMBER THIS DEFINITION)
DR CONTRACT ASSET(A) : SOFP
CR REVENUE FROM CONTRACT WITH CUSTOIMERS(I) SOCI
(REVENUE RECOGNITION: BE SPECIFIC ON THE TYPE OF REVENUE)
receivables
It is defined as and in cities right to consideration.
that is unconditional
. only must wait for time to pass
. before payment falls due
this definition can also be confusing at times hence why we simplify its too. trade
receivables means that we have satisfied all our performance obligations the only thing that
we are waiting for is the payment. which means that we have satisfied our performance
applications we are just waiting to be paid/ or one can say we have satisfied our
performance application, but we have not yet been paid. (THIS definition)
DR RECEIVABLES(A) (SOFP)
CR REVENUE FROM CONTRACT WITH CUSTOMERS(I) SOCI
(REVENUE RECOGNITION)
WITH CUSTOMERS
In any business revenue is the most important aspect in the financial statements. revenue is mainly
used to measure the profitability of the company. revenue is made in terms of IFRS 15 this is a
universal standard or law that is used by many countries. the reason why there is a universal law it is
because revenue is based on estimates and since it is based on estimates it is easy to manipulate
revenue. this standard IFRS-15 ensures that there is no such manipulation to revenue.
DEFINITION
revenue IS s an income
arising from the ordinary activities of the entity
Income is defined as
an increase in assets or decrease in liabilities
resulting in increase in equity
other than contributions from holders of equity claims (those are shareholders)
There are five steps to revenue
Identify the contract with the customer
identify the separate performance obligations in the contract
determine the transaction price
allocate the transaction price
recognize revenue when a performance application is satisfied.
You must be wondering what a performance obligation
performance obligation Are promises to transfer goods or services/ bundles that is distinct.
, it is also imperative/ important dance with define what is a contract asset, contract liability as well as
receivables.
IF RECEIVED IN CASH
DR CASH
CR REVENUE(I)
(REVENUE RECOGNITION)
the issue arises when we have not yet been paid. that is when we need to go back to our definition
of a contract assets and contract liability as well as trade receivables. remember that it is only
contract assets as well as trade receivables when the amount of consideration has not yet been paid
(received from the customer. if we have satisfied some performance obligations but we have not yet
been paid we will recognize it as a contract asset. if we have satisfied all our performance
obligations but we have not yet been paid then we are going to go to trade receivables that is the
only difference that arises with between a contract asset as well as trade receivables assets.
contracts assets
It is defined as an entity's right to consideration
in exchange for goods or services that is the ENTITY has transferred to a customer
When that is right is conditional on something rather than the passage of time.
the above definition can be confusing, I will simplify what it means. it contracts assets means
that we have satisfied some performance obligations but not all as per contract and you
have not yet been paid. (REMEMBER THIS DEFINITION)
DR CONTRACT ASSET(A) : SOFP
CR REVENUE FROM CONTRACT WITH CUSTOIMERS(I) SOCI
(REVENUE RECOGNITION: BE SPECIFIC ON THE TYPE OF REVENUE)
receivables
It is defined as and in cities right to consideration.
that is unconditional
. only must wait for time to pass
. before payment falls due
this definition can also be confusing at times hence why we simplify its too. trade
receivables means that we have satisfied all our performance obligations the only thing that
we are waiting for is the payment. which means that we have satisfied our performance
applications we are just waiting to be paid/ or one can say we have satisfied our
performance application, but we have not yet been paid. (THIS definition)
DR RECEIVABLES(A) (SOFP)
CR REVENUE FROM CONTRACT WITH CUSTOMERS(I) SOCI
(REVENUE RECOGNITION)
