Question

Identify some accounting issues associated with revenue and various expense accounts.

Answer 1

Revenue recognition is a major problem faced in accounting. When revenue should be recorded in books. As revenue can be in advance or receivable in the upcoming period or partly received. Thus it is important to pay attention in this case as it may increase or decrease tax as well as income of the company. The same is the case with expenses when recording expenses. There are many conditions like prepaid expenses, expenses payable or expenses that may arise in the future.

All the principles related to these must be taken care of.

There are many types of expenses and revenues that are short term, long term, capital/ revenue in nature, and the accounting treatment for all are different. Thus nature of expenses/revenues must be considered while recording them. For example expenditure on the purchase of assets must be shown in the balance sheet and thus its a capital expenditure that is not shown in the profit and loss account. Whereas expenditure on payment of electricity bills or purchase of inventory/raw material has a different accounting treatment. A wrong treatment may change the profits shown in books of organisation.