The Recognition Of Revenue And Accounting In The Accounting Theory

Recognition of revenue and income has become a key subject for both of determination of financial performance and basic investigation in accounting theory. There are several reasons for increasing the attention of recognition of revenue. One of the reasons is that between 1990s and 2000s, Internet Companies value the revenue and they considered that revenue is more crucial than income. Second reason for revenue has gained more attentions is that company’s buildup their business structures that involved complicated agreement of goods and services and the confusion of customer contracts. Financial information can get easily because of the changing of the reporting environment, which provides a lot of appropriate and reasonable information at

Moreover, based on previous revenue, companies can form expectation of future revenues. According to the investigation of 400 CFOs, the performance measured of the revenue report is a second most crucial to outsiders often earnings and before operation cash flow. The survey of Tortman and Zimmer (1986) stated that when examining financial statements, methods of revenue recognition do not need to make adjustment because revenue is a recognized item for the financial statements

However, the researcher, Dichev and Tany (2008) found that the connection of revenue and expense fall down whilst the increasing rate of revenue cannot research the increasing rate of expenses. This investigation applied in accounting standard and result showed that lack of matching of expenses to revenue. At the same time, Donelson, Jenning and McInnis (2011) observes that because of a large amount of economic charges and small charges of accounting standard, there is a lack of matching of expenses to revenues.

Prakash and Sinha (2013) particularly view shareholders’ understanding of a change in deferred revenue that goes up because of customers’ prepayment. That deferred revenue included expenses that are not part of the cost of product and services and therefore the increasing mismatch between the revenues and expense. This mismatch affects both depresses margin when the deferred revenue and inflates margin when the earning period is accomplished.

Both revenues and earnings can assist in companies’ management and in management performance evaluation as a main performance measures. This performance ignores market price and only concentrates on lure and reported revenue’s economic result. As a result, using performance measure depended on defective principle recognition of revenue can finally kill