Briefly describe the principle of revenue recognition of enterprises, what is the principle of reven

The Accounting System for Business Enterprises clearly stipulates the conditions for revenue recognition, the determination of amounts, and the handling of discounts, discounts, and returns. Article 85 stipulates that the income from the sale of commodities shall be recognized when the following conditions can be met: (1) the enterprise has transferred the main risks and rewards of the ownership of the commodities to the purchaser; (ii) the enterprise neither retains the right to continue management, which is normally associated with ownership, nor does it exercise control over the commodities sold; (3) the economic benefits related to the transaction can flow into the enterprise; and (iv) the relevant revenues and costs can be reliably measured.

Revenue recognition is conditional on a transfer of ownership (control) of goods or services that can be reliably measured as expected economic revenue.

Revenue recognition is accrual.

According to the Provisional Regulations on Value-Added Tax, the determination of the time of occurrence of VAT liability is defined from the form of sales realization, and the specific provisions are as follows:

1.For the sale of goods or taxable services, the tax liability shall arise on the day of receipt of the sales payment or the receipt of the sales payment receipt. Depending on the settlement method, the details are:

First, the sale of goods by direct payment, regardless of whether the goods are issued or not, is the day on which the sales money is received or the proof of claim for the sales money is obtained, and the bill of lading is handed over to the buyer; Second, the sale of goods by means of collection and acceptance and collection by entrusting the bank is the day on which the goods are dispatched and the collection procedures are completed; Third, the sale of goods by means of credit sales and installment payment shall be on the day of the payment date agreed in the contract; Fourth, the sale of goods in the form of advance receipt is the day on which the goods are issued; Fifth, entrusting other taxpayers to sell goods on behalf of the consignment unit shall be the day on which they receive the consignment list of the consignment unit; Sixth, the day on which the sales of taxable services are provided and the sales money is received or the voucher for the sale payment is obtained; 7. If the taxpayer is deemed to have sold goods in accordance with the regulations, it shall be the day on which the goods are transferred.

2.For imported goods, the tax liability shall be incurred on the day of customs importation.

An analysis of the above provisions shows that there is a discrepancy between the time of sales recognition stipulated in the tax law and the provisions of the accounting system. The accounting system for enterprises requires that four conditions be met at the same time for the realization of sales revenue: first, the enterprise has transferred the risks and rewards of commodity ownership to the buyer; second, the enterprise neither retains the right to continue management, which is usually associated with ownership, nor does it exercise control over the goods sold; Third, the economic benefits related to the transaction can flow into the enterprise; Fourth, the relevant revenues and costs can be reliably measured.

From the perspective of the two provisions, the provisions of the accounting system on the realization of sales are from the perspective of the interests of the accounting subject, and the accounting system embodies the principle of substance over form; The tax law pays more attention to the provisions of the form of income, pays attention to the operability of the evidence, and as long as the relevant procedures meet the requirements of the tax law, it marks the occurrence of tax liability.

The enterprise income tax stipulates that the calculation of the taxable income of taxpayers shall be based on the principle of accrual accounting, and at the same time, the provisions on the sale of goods by installments, long-term engineering (labor) contracts and other business operations can be determined according to the following methods:

1) If the goods are sold in installments, the realization of sales revenue can be determined according to the date of the purchase price payable as agreed in the contract;

2) Architecture. If the installation and assembly works and the provision of labor services last for more than one year, the realization of income can be determined according to the progress of completion or the amount of work completed;

3) If the processing and manufacturing of large-scale machinery and equipment, ships, etc. for other enterprises lasts for more than four years, the realization of income can be determined according to the completion progress or the amount of work completed.

The principle of revenue recognition ——— substance over form.

In the Income Guidelines, income is defined as "the total inflow of economic benefits arising from the sale of goods, the provision of services and the use of the assets of the enterprise, and does not include payments collected on behalf of third parties or customers".

From this definition, it can be broken down into three important characteristics of income, first, it is the economic benefit formed by daily activities; Second, this inflow of profits is obtained by the sale of goods, the provision of labor services and the use of the assets of the enterprise. Thirdly, the inflow of economic benefits does not include payments collected on behalf of others. In this way, accountants are able to recognize revenue from these three characteristics.

According to the relevant provisions of the Notice on Several Issues Concerning the Recognition of Enterprise Income Tax Income (Guo Shui Han [2008] No. 875):

1. Except as otherwise provided in the Enterprise Income Tax Law and the Implementing Regulations, the recognition of enterprise sales revenue must follow the principle of accrual accounting and the principle of substance over form.

2. At the end of each tax period, if the result of the labor service transaction can be reliably estimated, the completion progress (completion percentage) method shall be used to confirm the labor service income.

3. If an enterprise sells its own commodities in a combination of buy one and get one free, it is not a donation, and the total sales amount shall be apportioned and recognized according to the proportion of the fair value of each commodity.

China stipulates that China is basically the same as the International Accounting Standards Board in terms of the standards for recognition of labor income. Transactions for the provision of services should be measured according to the completed contract method or the percentage of completion method, depending on which method can be used to link the recognized revenue to the amount of work completed more accurately, i.e., to follow the principle of relevance. The specific regulations in our country are:

If the period during which services are rendered spans more than one accounting period, and the results of transactions in which services are rendered can be reliably estimated, the enterprise should recognize revenue on the percentage of completion method.

The 4 conditions under which the outcome of a trade can be reliably estimated are:

The total revenue and total cost of the contract can be reliably determined;

the price associated with the transaction can be recovered;

The procedure for the completion of the service can be reliably determined;

The costs that have already been completed can be reliably measured. If the above conditions are not met, the enterprise should recognize the revenue according to the completion contract method. Japan falls into this category of countries that prefer the "principle of prudence" and advocate the application of the law of completion of contracts in all circumstances.

According to Article 4 of Chapter 2 of Revenue No. 14 of Accounting Standards, revenue from the sale of goods can only be recognized if the following conditions are met at the same time:

1) The enterprise has transferred the main risks and rewards of the ownership of the goods to the purchaser;

ii) the enterprise neither retains the right to continue management, which is normally associated with ownership, nor does it exercise effective control over the goods sold;

iii) the amount of income can be reliably measured;

4) the relevant economic benefits are likely to flow into the enterprise;

v) The associated costs incurred or to be incurred can be reliably measured.

The concept of income:

China's current system adopts the concept of income in a narrow sense, that is, income refers to the total inflow of economic interests formed by enterprises in their daily activities, which will lead to an increase in owners' equity and have nothing to do with the capital invested by owners. The income involved includes income from the sale of goods, income from the provision of services and income from the transfer of the right to use assets.

Principles of revenue recognition:

Revenue from the sale of goods can only be recognized if the following four conditions are met:

1) The enterprise has transferred the main risks and rewards of the ownership of the goods to the buyer.

Risks and rewards in the ownership of goods.

Determination of whether the main risks and rewards of commodity ownership have been transferred.

2) The enterprise neither retains the right to continue management, which is usually associated with ownership, nor does it exercise control over the goods sold.

3) The economic benefits associated with the transaction are likely to flow into the business.

The economic benefits related to the transaction are mainly manifested in the price of the goods sold;

In practice, if the goods sold by the enterprise meet the requirements stipulated in the contract or agreement, and the invoices and bills have been delivered to the buyer, and the buyer has also promised to pay, it means that the price of the goods sold can be recovered.

If the enterprise judges that the price cannot be recovered, it should provide reliable evidence.

4) The associated revenues and costs can be reliably measured.

Whether income can be reliably measured is the basic premise of revenue recognition;

Costs cannot be reliably measured, and revenue cannot be recognized even if all other conditions have been met.

Finally, the recognition of revenue should at least meet the following conditions: first, the economic benefits related to the income should be likely to flow into the enterprise; Second, the result of the inflow of economic benefits into the enterprise will lead to an increase in assets or a decrease in liabilities; Third, the inflow of economic benefits can be reliably measured. These two points are what everyone must keep in mind in the intermediate accounting title.

According to the provisions of the tax law, the principle of revenue recognition has the following points: the first is the invoice to recognize the income, the second is the issuance of the goods, and the ownership of the goods is almost confirmed to be owned by the consignee, the third is to recognize the revenue according to the contract, and the fourth is to recognize the revenue when the payment is received according to the contract. Revenue is recognized on an accrual basis.

The principle of substance over form. I hope the above content is helpful to you, thank you!

The principle of revenue recognition is that the enterprise should recognize revenue when the customer obtains control of the relevant goods after fulfilling the performance obligations in the contract.

Gaining control of the relevant commodity refers to the ability to dominate the use of the commodity and derive almost all of the economic benefits from it, as well as the ability to prevent other parties from dominating the use of the commodity and deriving economic benefits from pure delay.

What is the income?

Income refers to the total inflow of economic benefits formed by an enterprise in its daily activities that leads to an increase in owners' equity and capital invested by non-owners, including income from the sale of goods, income from labor services, interest income, rental income, income from the transfer of asset use rights, dividend income, etc., but does not include payments collected for third parties or customers.

There are two main classifications of income, one is according to the nature of the daily activities of the enterprise, which is divided into income from the sale of goods, income from the provision of labor services, income from the right to use transitional assets, income from construction contracts, etc.; The other is that the bridge is divided into main business income and other business income according to the importance of the enterprise's daily activities in the enterprise.

The characteristics of income include: it is formed by the business in its daily activities; It leads to an increase in owner's equity; It is the total inflow of economic benefits that are not related to the capital invested by the owner.

What is the five-step approach to revenue recognition?

The new standard sets out a five-step approach to revenue recognition measurement, which are:

1. Identify the contract with the customer;

2. Identify the individual performance obligations in the contract;

3. Confirm the transaction**;

4. Min Pants Li will allocate the transaction ** to each individual performance obligation;

5. Revenue is recognized when each individual performance obligation is fulfilled.

How to account for enterprise income?

1. Obtain main business income:

When revenue is recognized:

Borrow: Bank deposit.

Credit: main business income.

Tax Payable – VAT payable (output tax).

When carrying forward costs:

Borrow: Cost of main business.

Credit: Inventory of goods.

2. Obtain other business income:

When revenue is recognized:

Borrow: Bank deposit.

Credit: Other business income.

Tax Payable – VAT payable (output tax).

When carrying forward costs:

Borrow: Other operating costs.

Credit: raw materials.

According to the notice of the Ministry of Finance on the revision and issuance of the Accounting Standards for Business Enterprises No. 14 - Revenue, Cai Hui [2017] No. 22, when the contract between the enterprise and the customer satisfies the following conditions at the same time, the enterprise shall recognize the revenue when the customer obtains control of the relevant goods:

a) the parties to the contract have ratified the contract and undertake to perform their respective obligations;

c) the contract has clear payment terms related to the transferred goods;

4) The contract has commercial substance, i.e., the performance of the contract will change the risk, time distribution or amount of the enterprise's future cash flows;

5) The consideration to which the enterprise is entitled to receive as a result of the transfer of goods to the customer is likely to be recovered.

Contracts that satisfy the conditions of the preceding paragraph on the date of commencement of the contract are not required to be re-evaluated by the enterprise in subsequent periods, unless there are indications of a material change in the relevant facts and circumstances. The contract start date usually refers to the date on which the contract takes effect.