1. Revenue is generally refers to the amount of money made from selling products and services.
2. Revenue (also referred as Sales or Income) forms the beginning of the Profit and Loss statement. It is also known as the “Top Line” of a business.
3. Depending on who you talk to (professionals or otherwise), there are different ways to calculate Revenue. In here, we will introduce two commonly used methods in Singapore – Accrual Accounting and Cash Accounting.
4. Under the Accrual Accounting method, Revenue will be recognised for goods or services already delivered to the customer during the accounting period. This is so even if payment has not yet been received from the customer. This Revenue will consequently be recognised as Accounts Receivables or Trade Debtors in the Balance Sheet statement.
5. On the other hand, Cash Accounting refers to accounting Sales as Revenue when payment is received. This is so even when goods or services are already delivered or rendered to the customer.
6. As you can see, there is a mismatch of Revenue and Cost under the Cash Accounting method. Revenue is under-declared and Cost is over-declared. In other words, Profits is under-stated or Loss is over-stated in the accounts.
7. Having said that, Accrual Accounting is the correct method to record the Revenue of your business, i.e. it is to be recorded on the date it is earned. This is in line with IRAS requirements and accounting standards.
8. Recognizing Revenue correctly is also important as it is usually look upon by external parties like investors, customers, suppliers and tax authorities when assessing the accounts.
9. If you have any questions regarding your business Revenue, please come and talk to us. PL Biz Consulting Pte Ltd have the knowledge and experience to explain and guide you to recording your business Revenue in a correct and accurate manner.
