Advanced Financial Accounting for Byrne Limited -myassignmenthelp

Question: Discuss about theAdvanced Financial Accounting for Byrne Limited. Answer: Issues in Revenue recognition: The case is about issue of recognition of revenue of an organization for rendering services to their clients of non-cancellable contracts. It is the policy of company to have the full payment at the date of signing contract for overcoming dealing with clients who do not make payment. Byrne Limited is one of the client that has entered into a contract of $ 12000 on 15th April, 2017. Services would be delivered on monthly basis. The amount of money received from the contract is treated as service revenue in the statement of comprehensive income. It is perceived by the director of company to recognize the income received as deferred income and over the period of contract they should be recognized as revenue (Cascini et al. 2014). If the revenue is not recognized for all the payment received by byers from non-cancellable contracts, there will be innumerable number of journal entries. Treatment of income received by clients for the non-cancellable contracts are required to be treated as unearned income. The amount of revenue received is treated as unearned income in the liabilities side of balance sheet. This amount will be treated as liabilities because the income is received beforehand and prior to providing service to their clients. Therefore, the amount of income received in advance is treated as liabilities. For the purpose of analysis, all the circumstances and facts are to be considered. Treating unearned income as liabilities in the balance sheet would increase the total liabilities of company (Wagenhofer 2014). As the company provides service to client on monthly basis, the amount rendered for that particular service would be reduced from the unearned income and the same amount will be entered as recognized revenue in the income statement of organization (Cheney 2013). It would be not apt for organization to treat the amount received for the non-cancellable contract as revenue at the time when they are received. This is so because customers are paying such amount in advance for which the services have not been rendered yet. For this particular reason, advance received from customers should be treated as unearned income in the liabilities side of balance sheet instead of recognizing it as revenue when they are received (Kasztelnik 2015). By the time, services and agreements have been performed as per contract, the liabilities of company is reduced by the total value of contract or the amount paid for service. References list: Cascini, K.T., DelFavero, A. and Bezner, R., 2014. Corporate Revenue Miscalculations The Impact On Stakeholders.Journal of Business Economics Research (Online),12(2), p.77. Cheney, G.A., 2013. Revenue recognition realized: US companies--long calling for revenue disclosure that was less prescriptive and principles-based--may question what they wished for when the new standard is adopted.Financial Executive,29(8), pp.31-35. Kasztelnik, K., 2015. The Value Relevance of Revenue Recognition under International Financial Reporting Standards.Accounting and Finance Research,4(3), p.88. Wagenhofer, A., 2014. The role of revenue recognition in performance reporting.Accounting and Business Research,44(4), pp.349-379.