Question
When should revenue be recognised? Are there exceptions to the general rule?
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Answer
Revenue is recognised only when it is realised i.e., when a legal right to receive it arises. Thus credit sales are treated as revenue on the day sales are made and not when cash is received from the buyers. Similarly, rent for the month of March even if received in April month will be treated as revenue of the financial year ending 31st March.There are two exceptions to this rule:
- In case of sales on installment basis, only the amount collected in installments is treated as revenue.
- In case of long-term construction contracts, proportionate amount of revenue, based on part of the contracted completed by the end of the financial year is treated as realised.
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