Skip to main content

When you should recognise revenue in business



Image courtesy of Stuart Miles at FreeDigitalPhotos.net



Hello readers, hope your weekend was good. Today, I will be writing about recognising revenue in business. Some individuals do recognise revenue when it has not been received. The prudency concept in accounting states that you should not overestimate your revenue. This will prevent you from spending the money you do not have. By that I mean an individual might spend this money because they are expecting that money and that money might end up not coming in.

Most products, goods especially get their revenue once they are delivered to the customer in good condition and the customer pays promptly. You can easily recognise your revenue except in situations whereby customers are allowed to pay on a later date. Do not charge interest, it is a sin. Prices should be the same whether they are paying now or later.

While a business that builds product like a car or a house takes time to build such products. As a result profit recognition can be tricky. Its best not to wait till the end of the  project before you collect your money. You should collect them in installments as the production progresses. Revenue should be recognise once you receive the money except in situations whereby you already a long time relationship with the customer and you are convinced they will pay when their installment is due.

Some will say that you should recognise profit as you progress on the project. I will say that you should collect your money first and then recognise it so that you can spend accordingly. Meaning you do not spend money because you are expecting that money. Except in situations whereby you have established a long standing relationship with the customer and you are convinced that the person will pay as at when due.

This has nothing to do with the prepartion of your financial statements, it focuses on helping you manage your finances in business.

Keep checking out my blog regularly, Cheers!

Comments

Popular posts from this blog

Eid Mubarak

Happy Eid ul Fitri

Understanding the buyers behaviour

Hello readers, today I will be writing about buyers behaviour when it comes to purchasing products (goods and services). I hope your week has been good. A buyer is an individual that makes a purchase. That purchase can be influenced by his/her emotions or his/her rational mind.

For your marketing strategy to be successful you have to truly understand the buying behaviour of your customers. Some customers buy goods based on trust and loyalty which falls into the emotional reasons. Thus, you have to build trust between your customers and yourself so they can return back to you. Trust is built when you offer good quality for reasonable prices.

Some products are bought regularly while some products are purchased seasonally. If your products fall into the seasonal category, you should only purchase them to be resold during that season. At times buyers purchase products on behalf of another individual. In that situation, you have to capture the mind of both the buyer and the actual person tha…