Revenue Accounting

Changing business landscapes and progressive business models have resulted in different accounting requirements for modern business transactions. One of this is proper revenue recognition, which has been a much discussed subject the past few years. The ultimate aim of revenue accounting is to determine and record revenue generated for an organization. Revenue refers to the income that the organization derives from its ordinary business activities, such as sales of products or services to its clients.

A generic financial revenue accounting system involves data capture and compilation, accounting, auditing, reconciliation and management reporting. The traditional accounting systems are not designed to cover the detailed processes in revenue accounting. In these systems, the revenue account is represented in summary as inflow of money against costs and expenses over an accounting period. However computer revenue accounting systems are available to help automate the complex processes involved in revenue accounting.

The financial revenue accounting systems are most commonly employed in the oil & gas production and the airline industries. The airline industry requires an automated sales revenue accounting system or passenger revenue accounting system (PRA) which ensures cash collection for revenue earned, manages the airline forward sales and provides accurate revenue reporting. The oil & gas companies usually employ computerized production revenue accounting systems designed to handle the intricacies of their production operations. They feature ownership and contract management, comprehensive reporting of sales and production volume, computation of taxes, royalties and other deductions.

In the financial revenue accounting systems, a number of accounting methods are employed. Accrual revenue accounting refers to a system in which the accrued revenue is recognized though cash has yet to be received, and the accrued expense is recognized before cash is paid. Deferred revenue accounting is the reverse, in which revenue is recognized after receipt of cash, while deferred expense is taken only after cash is paid. Similarly prepaid revenue accounting and unearned revenue accounting refer to prepaid expenses and unearned revenues, which are considered prepayments. Adjustments are required; as such the accounting reports may not necessarily reflect the permanent financial status of a company