The Essence of Monitoring Growth of Revenue
Revenue accounting can be described as the procedure of receipt, organization and recording of payments. It also incorporates invoicing, tracking, recording and collection of loans as well as other kind of debt receivable over customer accounts. This branch of accounting offers the essential tools for determination and monitoring of the revenue generated in a business.
Revenue recognition is one of the four main principles of the generally accepted accounting principles (GAAP). The remaining three are the full disclosure principle, the matching principle and historical cost principle.
In business terminology, revenue refers to the income which a firm actually generates through its activities, particularly from sale of products or/and services to its customers. Continuous growth in revenue is crucial for a firm to attract investors towards its stocks that are publicly traded. However from the perspective of an investor, the importance of profits is greater than that of revenue. Generally, the word top line represents revenue. This is because of the fact that revenue is placed at the top in the profit and loss account of a company. All the remaining expenses and costs are placed below revenue.
Technically speaking, revenue is described as an estimation or calculation of periodic income on the basis on a specified standard accounting rule or practice established by any government agency or the government of a nation. The two common methods of accounting, the accrual basis accounting and cash basis accounting do not utilize the same procedure for measurement of revenue. Moreover, the organizations whose shares are traded over the stock exchanges need to report revenue on the basis International Financial Reporting Standards or generally accepted accounting principles. Therefore, revenue accounting is indispensable for contemporary business organizations.
In the system of double entry bookkeeping, revenue accounts are the ledger accounts which are summarized periodically under the head Revenues on an income statement or Revenue. Moreover, the names of revenue accounts describes the nature of revenue like sales, rent revenue earned or repair service revenue.
Revenue accounting consists of procedures like capture of data, preparation, auditing, accounting, interline billing, management reporting and reconciliation. In the present scenario, such systems have become more complex. Therefore, auditors need to examine the fine details of financial records. However, a number of accounting systems are not able to handle complicated revenue procedures in an effective manner. This is because the systems are developed for management of simple revenue procedures. The revenue accounting systems can be automated by utilizing software packages. These systems facilitate the management of different currencies, corporate entities and business models.