Accountants' Handbook Volume One: Financial Accounting and General Topics, Eleventh Edition

Chapter 19. REVENUES AND RECEIVABLES

Alan S. Glazer, PhD, CPA

Franklin & Marshall College

Henry R. Jaenicke, PhD, CPA

Drexel University

NATURE AND MEASUREMENT OF REVENUE

(a) DEFINITION AND COMPONENTS OF REVENUE.

Statement of Financial Accounting Concepts (SFAC) No. 6, "Elements of Financial Statements" (pars. 78, 79, and 82), issued in December 1985, defines revenues and gains as follows:

Revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

Revenues represent actual or expected cash inflows (or the equivalent) that have occurred or will eventuate as a result of the entity's ongoing major or central operations. The assets increased by revenues may be of various kinds—for example, cash, claims against customers or clients, other goods or services received, or increased value of a product resulting from production. Similarly, the transactions and events from which revenues arise and the revenues themselves are in many forms and are called by various names—for example, output, deliveries, sales, fees, interest, dividends, royalties, and rent—depending on the kinds of operations involved and the way revenues are recognized.

Gains are increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances ...