Module 2- Case Analysis

Module 2- Case Analysis

Part 1

Q1) Issue of revenue recognition

Recognition of revenue is the most significant issue not only for its own purpose, but also according to the concept of matching principles, expenses of the company must be documented at similar time during which companies document its revenue (Begg, 2011). Thus, according to the accounting concept, the moment of recognizing revenue has a certain impact on certain type of expenses. Mainly because of this, the accounting process of recognizing the revenue for the company despite of its significance is becoming more complex and difficult for the companies of modern era. On the other hand, inability of organization to control its internal revenue recognition process is considered the prominent factor of poor financial reporting.

Determination of revenue recording for accounting purpose

Revenue which is also known as income that a company earns after the completion of transactions, for instance, income earned after selling of goods and services, income earned through reimbursement from third party, and income earned from external sources. According to the general accounting principles, companies record the revenue for their accounting purpose after the completion of the earning process.

Q2) Difference between period and product expense

Normally cost incurred by the companies is recorded as expense in the income statement of the fiscal year, and based on these concept product cost or product expense is also known as the variable expense of the company. This is related to expense that directly differ to the level of output produced by the company i.e. No change is observed in the per unit cost of the product with the increase or decrease in the production of the product, but there is a comprehensive change in the total cost of the product.

On the other hand, period expense is known as the fixed cost or expense that is directly related to the expense that remains unaffected by alteration in number of output produced by the company (Begg, 2011). For instance, company would witness a decrease in the fixed cost with the increase in the production of products, and increases with the reduction in the production of product. Moreover, this type of expense is known as period because it is predominantly dependant on time at which production is done, rather than on the level of output produced by the company. Some of the most common example of the period expense is rent of building, salary of employees, and other expenses.

Q3) Matching concept

This concept is known as the combination of accrual accounting principle and principle of revenue recognition. Both of the stated principles of accounting identify the time during which companies document the incurred expenses and revenues for the current fiscal year. As per the standard of accounting, companies record their expenses after the completion of their task. for example, revenue is recorded after the sale of product, or rendering of services, on the other hand revenue is recorded when incurred from certain expense, irrespective of whether cash is being paid or ...