Question

When is revenue recognized in the following situations? (a) Revenue from selling products, (b) revenue from services performed, (c) revenue from permitting others to use company assets, and (d) revenue from disposing of assets other than products.

Short answer

1. When the seller has transferred the ownership of the product to the buyer
2. When services have been performed by the company
3. When interest, rent, etc., are received in return for assets used by others.
4. At the date of sale, revenue is recognized.

Step-by-step solution

Definition of Revenue Recognition

According to the revenue recognition principle, revenue is recognized when goods are exchanged for some consideration (amount) or when services are performed and receive some amount/cash in return.

Revenue recognized in the following situations

According to the revenue recognition concept, revenue is recognized in the following situations as follows:

1. Revenue from selling products: Under this situation, revenue is recognized when the seller transfers the ownership rights of the product to the buyer. When the seller sells the product to the buyer and receives a considerable amount in return.
2. Revenue from services performed: Under this situation, revenue is recognized when services are rendered to the customer or services performed and receive some considerable amount in return.
3. Revenue from permitting others to use company assets: Under this situation, revenue is recognized when the company receives some amount as rent, royalty fee, interest, etc.,from others to use the company’s assets.
4. Revenue from disposing of assets other than products: Under this situation, revenue is recognized at the time or the date of sale of the assets.