Income and expenses
All facts of the economic life of an enterprise reflected in accounting are made up of two groups - income and expenses.
Income and expenses are those facts of economic life that affect the financial result of the economic activity of an enterprise. They can be considered and interpreted from economic, legal and purely accounting points of view.
Economic interpretation
From an economic point of view, income is the receipt of funds at the disposal (economic turnover) of an enterprise.
Funds are what in accounting is included in the concept of assets - property that can participate in the business operations of an enterprise, bringing it profit, which is interpreted as an increase in the volume of funds of the company. The ability to dispose of funds in this case does not mean a real right of disposal, which creates the right of ownership, but the ability to use funds in one’s economic activity (economic turnover). Thus, by receiving equipment for rent, an enterprise can produce products on it in the same way as on equipment owned by it. Hence, from this point of view, rented equipment is completely equivalent to own equipment. In other words, from an economic point of view, income is any fact that an asset increases. And the first income that an enterprise receives is the founders’ contributions to its authorized capital.
Further, from an economic point of view, any increase in an asset associated with an increase in accounts payable is recognized as income. It is no coincidence that Eugen Schmalenbach (1873-1955) defined accounts payable as the income of an enterprise that has not yet become expenses. And even earlier - F.V. Yezersky (1836-1916) fully included all accounts payable in the credit of the Capital account, interpreting the occurrence of debt as an increase in the funds at the disposal of the company.
An expense, in an economic interpretation, is any disposal of funds (assets) from the disposal of an enterprise, i.e. an expense is a decrease in an asset.
At the same time, it is absolutely not important here as a result of what operations such a decrease occurs. Funds are withdrawn from economic circulation and this is already enough to recognize this fact as an expense. Thus, from an economic point of view, the sale of goods, works or services of an enterprise and the incurrence of buyer debt before payment is nothing more than an expense. The enterprise transfers goods into the ownership of the buyer (the volume of the enterprise's funds decreases), but does not receive money in return until a certain time. Hence, in this situation, from an economic point of view, this is an expense (goods are given), but there is no income (no money is received).
Legal interpretation
From a legal point of view, income is recognized as the receipt of tangible assets or intangible property (intellectual property), as well as the occurrence of obligations of debtors that are not related to the occurrence of obligations to creditors.
In other words, from a legal point of view, income is the emergence of an enterprise’s rights to something that is not associated with the loss of similar rights or the emergence of obligations.
This definition is based primarily on two concepts: property and liabilities. Property should be understood as objects of civil rights, which include things, including money and securities, other objects, including property rights; works and services, information; results of intellectual activity, including exclusive rights to them (intellectual property); intangible benefits (Article 128 of the Civil Code of the Russian Federation).
By analogy, from a legal point of view, expenses are defined as the disposal of tangible assets or intangible property (intellectual property), as well as the occurrence of obligations to creditors, not related to the occurrence of obligations of debtors to the enterprise.
Thus, from a legal point of view, what matters is not the actual movement of funds in the economic circulation of an enterprise, but the dynamics of its rights and obligations associated with these funds.
Hence, if from an economic point of view, the sale of goods before receiving payment from buyers is an expense - a diversion of funds from economic turnover, then from a legal point of view this fact means receiving income in the form of the buyer’s obligation to pay money.
Accounting treatment
The accounting definition of income and expenses is aimed at revealing the ways they are reflected in accounting and demonstrating data about them in the financial statements of the enterprise. It is based on a synthesis of economic and legal interpretations of income and expenses. The procedure for their official accounting is currently determined by PBU 9/99 “Income of the organization” and PBU 10/99 “Expenses of the organization.”
The central point of the definitions of income and expenses in PBU is their impact on the amount of the company’s capital (own sources of funds). The change in the capital of an enterprise as a result of accounting for the facts of economic life, defined as income and expenses, is determined by the amount of profit or loss reflected in the accounting (the difference between income and expenses). Hence, one way or another, the accounting of income and expenses of an enterprise is subordinated to the goal of determining the financial result of its activities (profit or loss). This makes it possible to give accounting definitions of income and expenses that are somewhat more simplified than those given by PBU, according to which income is understood as an accounting assessment of the facts of economic life that increase the financial result of the enterprise, and expenses reduce its financial result.
The main task of accounting for income and expenses is to determine their values, which should be presented in the financial statements. But this particular task is considered one of the most difficult in economics. Its solution goes through three stages: selection of facts of economic life, identified as income and expenses, i.e. determining the moment of occurrence (recognition) of income and expenses; assignment of income and expenses to the reporting periods for which the financial result is calculated; assessment of income and expenses.
Income and Expense Accounts in the Light of Dynamic and Static Accounting Concepts
Since digraphic accounting arose, a lot of time passed before income and expense accounts appeared for the purpose of deducing financial results. Profits and losses were reflected directly in the Capital (owner) account, and income and expenses were reflected in the goods account. The financial result was derived by comparing credit turnover on the “Goods” account, which reflected their write-off at sales prices, and debit turnover on this account, which reflected their receipt at original prices. In this case, a very important role was assigned to inventory, since without a physical count of the actual availability of goods at the time of deducing the financial result, it was impossible to obtain information about the balance of goods at original prices.
The accounting world is obliged to France for the introduction into the practice of accounting of special accounts in which income and expenses could be recorded as such, that is, without regard to any individuals (persons) or objects (property).
In 1860, Adolphe Guilbault proposed the Realization account. Only with the help of this account did it become possible to abandon the discrete (periodic, from report to report) inventory of goods and finally apply permanent (permanent, accounting) inventory when determining the financial result. Only the transition to permanent inventory made it possible to continuously record the initial assessment of goods and display the financial result at any time.
Income and expense accounts belong to a group of accounts called accounts of order and method by Leaute and Guilbault. Giuseppe Cerboni (1827 – 1917) called income and expenditure accounts the accounts of the administrator(s), Emmanuel Pisani (1845 – 1915) and later Pierre Garnier called them administrative accounts. A.P. Rudanovsky (1863 – 1934) in his classification assigned these accounts the role of budget ones, i.e. those through which the enterprise’s budget – equity capital is formed. Another Russian accountant, representative of the St. Petersburg school of accounting at the end of the 19th and beginning of the 20th centuries. N.F. Von Ditmar called income and expense accounts (as well as results accounts) abstract.
Pierre Garnier, one of the most prominent representatives of French accounting thought of the twentieth century, dividing all accounting accounts into two groups: balance sheet and administrative (management accounts), proceeded from two equalities that, in his opinion, underlie accounting:
- Asset – Liability = Result
- Income – Expenses = Result.
From here:
- Asset – Liability = Income – Expenses = Result.
Note. Determining the financial result using the first of the two equations shown is possible only if you are completely confident that there are no errors in the accounting records of the current period. It is precisely because of the extremely low probability of meeting this condition that this method of determining the financial result is not used in practice, and the formula is used only as theoretical proof (as in this case with Garnier).
Garnier argued that the Asset and Liability accounts account for specific values (one cannot agree that this is true or at least accurate. Especially in relation to the Liability accounts: capital and liabilities).
As for the income and expense accounts, they reflect the movement of funds, and not the funds themselves. Therefore, income and expense accounts appear in accounting as long as the established reporting period lasts, the boundaries of which determine the duration of the processes to be reflected in each successive report on these processes - in the financial results statement.
This point of view is quite consistent with the opinion of representatives of the American school of the twentieth century. In particular, the head of the personalistic trend in American accounting science, W. E. Paton (1889 – 1991), defined income as the dynamic process of an enterprise creating goods and services over a certain period of time.1
Thus, both the classification of accounts by P. Garnier and his views on the formation of income as a certain process are fully consistent with our current ideas about accounts, because with the transition to new accounting standards, all accounting accounts were divided into balance sheet accounts - permanent (asset accounts , capital and liabilities) and turnover accounts - temporary (income and expense accounts).
In accordance with the ideas developed from the static interpretation of the balance sheet, income and expense accounts should not be classified as classes of balance sheet accounts, if only because before the final formation of the balance sheet (reporting) balance, these accounts must be closed, i.e., not have balance. In other words: if expenses pass through the corresponding accounts only in turnover, without leaving a balance at the end of the reporting period, then everything that was listed on these accounts is not assets. That is why in the new accounting standards (and the influence of the static theory is very strongly felt in them) the words are so often found: “not recognized as an asset...”, i.e., they mean immediate write-off as an expense.
The same is with sales income accounts: since at the end of the reporting period the balance of each of the income accounts is certainly transferred to the capital account (profits and losses), these income accounts, according to the static concept, cannot be classified as capital accounts, despite the fact that they form this capital.
In dynamic accounting, it is also customary to close income and expense accounts before drawing up a report; moreover, this should be done monthly (of course, only if there is no work in progress stage, because in this case the balance remains on the expense account). But the most interesting thing is that even up to this point, an accountant who “professes” the dynamic concept does not even mentally separate expense accounts from a number of assets and, accordingly, does not separate income accounts (sales) from a number of liabilities.
According to the dynamic accounting concept of the expense account, there are real, very real assets. They materialize in the products (works, services) that are to be sold. For example, investing in the product the labor of hired personnel, i.e. By charging wages and social insurance costs, the enterprise increases the consumer and exchange value of the final product. The accrual of other types of expenses is understood similarly. Each type of expense is an economic element that is an integral part of the total cost of the final product. All expenses incurred but not yet written off for sale remain on the balance sheet as work in progress (expense account balance), or as finished goods (finished product account balance). The cost of finished products, as well as unfinished ones, as is known, consists of the cost of resources and labor invested in them. All expenses that are written off for sale at the time of drawing up the balance sooner or later turn into money received as part of sales proceeds. And until the money is received, they are included in accounts receivable, i.e., the debt rights of the enterprise in relation to buyers and customers. In total, all expenses written off for implementation make up the cost of consumed resources, in other words, they materialize in the final product. Writing off expenses for sales, relatively speaking, does not mean writing them off the enterprise’s balance sheet. All expenses incurred (resources consumed), one way or another, remain on the balance sheet in a different capacity, have a different form, and therefore are reflected in other items. Of course, there are no longer any “expenses” either in accounts receivable or in revenue. And it shouldn’t be, since the assets that were spent in the production process simply “dissolved” in a different quality. They dissolved, but did not disappear from the balance sheet: working capital works continuously, turning into the so-called. small circle of monetary circulation. It should be emphasized that such views reflect a dynamic interpretation of the balance sheet, an understanding of the balance sheet in unified connection with the statement of financial results.
And herein lies the main difference in approaches to cost accounting: in dynamic accounting, it is believed that the reflection of a decrease in income from sales by the amount of the cost of the final product is written off as sales of this final product itself, and in static accounting, when reflecting such operations, simply expenses are written off, as something not materially tangible. For expense accounts in static accounting are just screens that reflect the accumulation of a certain set of elements. Thus, in static accounting, the category of expenses is separated from the category of value creation. In the dynamic accounting model, the dual unity of these categories and their inseparability are clearly visible.
1 See E.S. Hendriksen, M.F. Van Breda. (Translation from English by I. A. Smirnova). Accounting theory. M.: Finance and Statistics. 2000 (5th ed.), p.232.
Determining the moment of occurrence (recognition) of income and expenses
Solving the first problem involves answering the question: at what point can we say that the enterprise has received income or incurred expenses?
Example
On February 20, the company enters into an agreement with the client to carry out repair work; on March 18, the completed work is handed over, and an act of acceptance by the client is signed. On April 19, the client transfers money to the company’s current account. The question arises: at what point does income arise, that is, at what point can it be considered received? The answer to this is that any of the three named dates has a reason to be chosen.
Origination (recognition) of income at the time of conclusion of the contract . We can say that income arises from the moment the enterprise enters into an agreement with the client. Firstly, the very fact of concluding a contract generally shows that the likelihood of performing work in the future and receiving revenue is much greater than the likelihood of terminating the transaction. The prices of concluded contracts actually form the sales plan of the enterprise for the periods specified in them. Moreover, the implementation of such a plan, in contrast to purely economic targets, is ensured by established legal liability for failure to fulfill the contract. Moreover, the amount of such liability may exceed the transaction price.
The occurrence (recognition) of income at the time of execution of the contract . We can recognize income from the performance of work as received at the time of signing the act, i.e. at the time of execution of the concluded contract by the contractor. In fact, from the moment the customer signs the act, he formally acknowledges that the work was completed by the contractor in full and in accordance with the contract. Thus, his obligation takes on the nature of a debt, i.e. an unconditional obligation to pay the contractor the transaction price. Until the work was accepted, the customer's obligation to pay money was made conditional on the contractor's fulfillment of the obligation to complete the work. Now that this condition has been fulfilled, payment of the debt by the customer depends only on his will regarding compliance with the terms of the transaction. Failure by the customer to fulfill his obligation will entail his liability, which in general is much more serious than for termination of a contract that has not yet begun to be executed. This is where the right of claim of the contractor against the buyer of the work arises, the amount of which there is every reason to consider as income received.
At the same time, repayment of the customer’s debt depends on his expression of will, which also makes in this case the income from the sale of works in money only a probabilistic value. The ability to sell his debt under an assignment transaction also depends on the integrity of the customer. At the same time, even if the assignment takes place, the proceeds from the sale of the debt will be significantly less than its face value. Hence, as a matter of prudence, we cannot recognize the buyer's debt as income. Moreover, from an economic point of view, an enterprise’s receivables are not income, but, on the contrary, diverted funds withdrawn from the company’s turnover and given to its counterparties for use. And if the debt is not repaid, its amount will turn from income into losses of the company.
The occurrence (recognition) of income at the time of receipt of money . The moment of recognition of income from performing work under a contract can also be determined immediately when money is received from the customer. Only after the customer pays off the debt can we reliably say how much the completed transaction increased the amount of funds of the selling company, i.e., what was the income of the enterprise. This approach fully complies with and is justified by the requirement of prudence. Based on this, the very fact of performing work should not be recognized as receiving income. It should be noted that this approach to the interpretation of expenses significantly reduces the ability of the user of accounting information to assess the prospects for the existence of the enterprise. The fact is that in this case, from the accounting data, we cannot see not only the boundaries of the planned development of activities, but even the volumes of future financial flows due to already executed transactions. Here we are faced with the so-called “sealed windshield effect”, when the user of financial statements is likened to the driver of a car whose windshield is sealed and only the rear-view mirrors are left in front of him. In this case, the driver sees what happened “yesterday”, but does not see not only what is supposed to happen “tomorrow”, but also what is happening “now”.
Similarly, the issue of recognizing the fact of economic life as determining the amount of the financial result also applies to accounting for expenses.
The occurrence (recognition) of expenses at the time of conclusion of the contract . For example, an enterprise enters into an agreement for the purchase of goods, the price of which represents its expenses to support its activities. The fact of concluding a contract, as determining the volume of future cash payments to the supplier, can already be recognized as an expense of the organization. At the same time, this approach will significantly expand the time frame of accounting information, since from the accounting data we will be able to find out a legally confirmed cash flow plan.
The occurrence (recognition) of expenses at the time of execution of the contract . Expenses for the purchase of goods can be recorded in accounting after the execution of the contract by the supplier, i.e. from the moment the buyer’s obligation under the contract acquires the nature of an unconditional debt. In this case, no accounting entries are made before the goods arrive.
The occurrence (recognition) of expenses at the time of repayment of obligations . The moment the money is transferred to the supplier can be considered the moment expenses are incurred (recognized). It should be noted here that, from an economic point of view, the latter approach does not make it possible to demonstrate, using accounting data, the amount of credit that the buyer receives from the supplier for the period from the moment of purchase of goods to the moment of payment.
Each of the considered approaches to determining the moment of occurrence (recognition) in accounting for income and expenses contains both positive and negative aspects. Regulatory documents governing accounting practices choose one from all possible options. This does not mean that it is better or worse than others, just that for a certain period of time the legislator makes one of three possible decisions, and it becomes the accounting norm. In management accounting, such a choice should be determined by the information needs of reporting users.
Determining approaches to accounting for income and expenses
The procedure for accounting for income and expenses is largely determined by the organization itself, despite the fact that these procedures are a legal requirement. Regulatory legal acts primarily establish the basic forms in which the necessary indicators should be recorded, and in some cases, the deadlines for submitting the necessary reports to government bodies. The basic procedures within which the accounting in question can be carried out are determined at the level of a specific enterprise. This process can take place in correlation with the actual content of business transactions, during which the company invests or makes a profit.
Among those activities, the structure of which is determined primarily on the basis of internal corporate priorities, is the accounting of other income and expenses. The management of the company must, therefore, develop criteria by which certain costs or types of revenue will be classified as a given type. Thus, accounting and tax accounting are procedures that are extremely important from the point of view of analyzing the sustainability of an enterprise and assessing the effectiveness of its business model. The sources related to the noted types of accounting record the data that tax officials need to adequately assess the level of payment discipline of the company - in relation to budgetary obligations, as well as the compliance of its activities with the requirements of the law.
Requirements of current regulatory documents
Nowadays, in regulatory documents, the recognition of income and expenses is associated with the principle of temporary certainty of the facts of economic life. This principle is defined in paragraph 6 of PBU 1/98, according to which “the facts of the organization’s economic activities relate to the reporting period in which they occurred, regardless of the actual time of receipt or payment of funds associated with these facts.” This is the second option according to our classification. It means that income arises (recognizes) not when the money is received, but when the right to demand it arises; accordingly, an expense is generated not when the money is paid, but when the obligation to pay it arises.
According to paragraph 12 of PBU 9/99, revenue as income from core activities arises (recognizes) in accounting if the following conditions are met:
a) the enterprise has the right to receive this revenue arising from a specific contract or otherwise confirmed in an appropriate manner; b) the amount of revenue can be determined; c) there is certainty that an increase in economic benefits will result, which is the case when the entity received an asset in payment, or there is no uncertainty about its receipt; d) ownership of the product (goods) has passed to the buyer or the work has been accepted by the customer; e) expenses associated with this fact of economic life can be determined.
By analogy with the considered rules for recognizing income, PBU 10/99 defines the criteria for recognizing expenses in accounting. According to paragraph 16 of PBU 10/99, expenses are recognized in accounting if the following conditions are met:
a) the expense arises in accordance with a specific contract, the requirements of legislative and regulatory acts, and business customs; b) the amount of expenditure can be determined; c) there is confidence that as a result there will be a decrease in economic benefits for the payer. This certainty occurs when the payer has transferred the asset, or there is no uncertainty regarding its transfer.
Principles of accounting for income and expenses in enterprises
Accounting for expenses and income in Russian organizations is carried out primarily in accordance with legal requirements. The procedure itself is determined at the level of regulations issued by executive authorities - in particular, the Ministry of Finance of the Russian Federation. This department develops various accounting regulations, on the basis of which Russian companies carry out the procedures in question. The main feature that characterizes the accounting of expenses and income implemented by Russian firms is that not every cost can be classified as an expense, just as not every income can be classified as income. What are the definitions of the relevant terms?
Attribution of income and expenses to reporting periods
The procedure for distributing income and expenses over reporting periods is formed by the accounting principle of compliance, according to which expenses should reduce the profit of the reporting period in which, thanks to these expenses, the enterprise received income.
In each reporting period, there are facts of economic life that are qualified in accounting as income and expenses of the enterprise. But not all of these facts can be defined as expenses and income related to the reporting period in which they occurred. This is explained quite simply using the example of depreciation. So, for example, a factory buys equipment. The fact of purchasing this equipment represents an expense that can be estimated in the amount of the price of the supply contract. This expense will be recognized and reflected in the accounting records of the reporting period in which the equipment becomes the property of the enterprise. However, the enterprise bears the costs of purchasing equipment in order to produce products on it in the future, sell it and receive revenue - income. Consequently, the costs of purchasing equipment should presumably be recouped in the reporting period in which the products made on it will be sold. Further, since the products will be produced over a number of reporting periods, the costs in the amount of the purchase price of the equipment must be distributed in a certain way in relation to the periods during which they will be repaid.
The task of correlating the facts of the economic life of an enterprise with the reporting periods, the financial results of which they form, determines the methodology for accounting income and expenses.
The currently implemented approach to reflecting income and expenses in financial statements originates from the theory of dynamic balance by E. Schmalenbach. The balance sheet here is considered as a consequence of the accounting interpretation of the company's income and expenses. At the same time, the elements of the balance sheet represent a reflection of the stages of capital movement of the enterprise. An asset represents expenses that have not yet taken part in the formation of financial results (expenses that have not yet become income, that is, have not generated income). Liability demonstrates the profit received by the enterprise (income minus expenses) and accounts payable - funds received by the enterprise, credit, that is, income that has not yet become expenses (funds received that will need to be paid back in the future).
Like any scientific theory, the theory of dynamic balance is falsifiable, that is, it has certain boundaries. This logical structure does not include cash and cash equivalents (accounts receivable) reflected in the asset, that is, monetary assets.
Here we are faced with the most important paradox of the content of the balance sheet: it simultaneously reflects the items valued in money and the money itself, that is, it combines what is measured and the meter itself. At the same time, the reflection of income and expenses in the balance sheet represents the transformation of monetary items into non-monetary items and vice versa. Regarding the influence of accounting entries on the contents of the organization’s balance sheet, here we can distinguish three types of entries:
1) capitalization - the primary reflection of the amounts of income and/or expenses in the balance sheet; 2) recapitalization - the formation of new balance sheet items at the expense of previously reflected amounts of income and/or expenses; 3) decapitalization - writing off income and/or expenses from the balance sheet.
This classification creates six types of accounting records, which can be summarized in the following table 1.
Table 1
| Expenses | Income | |
| Capitalization | 1 | 4 |
| Recapitalization | 2 | 5 |
| Decapitalization | 3 | 6 |
Quadrant 1 is the capitalization of expenses. Capitalization of expenses is the transformation of monetary items into non-monetary ones. For example, we buy materials for making products. The purchase of materials is an expense of cash, or real - in this case, the purchase of materials will be reflected in the entry:
Debit 10 “Materials” Credit 51 “Current accounts”
Or potential - in the form of emerging accounts payable:
Debit 10 “Materials” Credit account 60 “Settlements with suppliers and contractors”
The enterprise incurred these expenses in order to generate income, but the expenses for the purchase of materials will bring income to the enterprise and, therefore, will take part in the calculation of the financial result in the reporting period in which the products made from them will be sold. Until this point, expenses are capitalized and reflected as assets on the balance sheet. Consequently, if expenses are capitalized, they do not reduce the financial result of the current reporting period; these are expenses of future periods, in Schmalenbach’s terminology - expenses that have not yet become income.
Quadrant 2 is the recapitalization of expenses. This is the transformation of one non-monetary asset item into another. Recapitalization of expenses is the movement of their amounts across an asset, that is, the formation of new asset items from previously recorded expenses. In our case, reflecting the manufacture and release of products from purchased materials, we form items of work in progress and finished goods in the warehouse using the fixed amounts of expenses for the purchase of materials. Entries are made on the debit of account 20 “Main production” and the credit of account 10 “Materials” and on the debit of account 43 “Finished products” and the credit of account 20 “Main production”.
Recapitalized expense amounts remain in the asset. They do not participate in the calculation of financial results. From here we can draw a general conclusion: while keeping the company's income constant, the greater the amount of expenses capitalized and recapitalized, the greater the financial result (more profit and less loss).
Squares 3 and 4 should be considered together. These are records for decapitalization of expenses, that is, writing them off from the balance sheet, and capitalization of income, that is, reflecting them on the balance sheet. These are facts of transformation of non-monetary items into monetary ones, implying the receipt of a financial result: profit or loss. So, sold products are written off by recording the debit of account 90 “Sales” and the credit of account 43 “Finished products”. With this entry, previously capitalized amounts of expenses for the purchase of materials are written off from the balance sheet and take part in the calculation of the financial result from sales. The amount of income received is capitalized by an entry in the debit of account 51 “Settlements” or account 62 “Settlements with buyers and customers” and the credit of account 90 “Sales”. In this case, the amount of the obtained financial result by entry in the debit of account 90 “Sales” and the credit of account 99 “Profits and losses” is capitalized in the liabilities side of the balance sheet*.
Note:
* Currently, according to the regulatory documents in force in Russia, the amount of profit received is capitalized in liabilities only after the reformation procedure (ed.).
The greater the amount of income capitalized in the asset, the greater the financial result. The larger the amount of decapitalized expenses, the lower the financial result.
We looked at squares 3 and 4 together. However, they can also be considered separately. It is possible to decapitalize expenses without capitalizing income (square 3), for example, when reflecting losses of inventory (debit to account 99 “Profits and losses”, credit to account 10 “Materials”). This is also the transformation of non-monetary items into monetary ones only with the sign “0”. It is possible to capitalize income, which does not imply simultaneous decapitalization of expenses, for example, reflecting a trade margin by an entry in the debit of account 41 “Goods” and the credit of account 42 “Trade margin”. In this case, this is also the transformation of a non-monetary item into a monetary one, since the goods account in this case begins to reflect the potential receivables of customers - the future revenue of the enterprise.
Square 5 - recapitalization of income - formation of new balance sheet items at the expense of previously reflected amounts of income - transformation of some monetary balance sheet items into others. Recapitalization of income can take place in both assets and liabilities of the balance sheet. Active recapitalization of income, for example, includes reflecting the repayment of their obligations by debtors. Thus, the receipt of money from buyers of products will be reflected by an entry in the debit of account 51 “Current accounts” and the credit of account 62 “Settlements with buyers and customers.” Recapitalization of liabilities takes place, for example, when accrual of dividends is reflected by an entry in the debit of account 84 “Retained earnings, uncovered loss” and the credit of account 75 “Settlements with founders”.
Square 6 is the recapitalization of income - writing off previously recorded income from the balance sheet. This is a reduction in the volume of monetary items, which does not imply their transformation into non-monetary ones. This, for example, may include paying off accounts payable.
This approach assumes a broader interpretation of the concepts of “income” and “expenses”, within which income is understood as any fact of receiving money, and expense is any fact of paying money.
Reflection of the company's income and expenses at the stages we have identified: capitalization, recapitalization and decapitalization determines the picture of the financial position of the enterprise, reflected in its financial statements. Thus, the greater the volume of decapitalized expenses, the lower the reported profit. On the contrary, an increase in the capitalization of expenses leads to an increase in accounting profit. Recapitalization of expenses from non-current assets to current ones (for example, by charging depreciation) leads to an increase in the company's solvency indicators. In turn, the content of accounting information determines its perception by users of reporting and their adoption of management decisions.
The accountant gets the opportunity to influence the amounts of capitalization, recapitalization and decapitalization of expenses through accounting and contractual policies. Thus, by implementing accounting and contractual policies, we actually model financial statements, influencing the opinions and management decisions of its users. (For more information about this, see the article “Modeling the financial position of an organization.”
The procedure for reflecting income and expenses in accounting
Home Favorites Random article Educational New additions Feedback FAQDuring the year, information on income and expenses from sales for the organization’s ordinary activities, as well as the financial result for them, is reflected in account 90 “Sales”.
Sub-accounts can be opened for account 90: 90-1 “Revenue”, 90-2 “Cost of sales”, 90-3 “Value added tax”, 90-4: “Excise taxes”, 90-9 “Profit / loss from sales "
Expenses for ordinary activities are recorded in accounts 20, 21, 23, 25, 26, 29, 44.
For example, the subject of activity of PMK Gidrostroy LLC is the performance of work and the provision of services. According to the working chart of accounts, the costs of performing work in the accounting department of the enterprise are reflected in the account. 20 “Main production”. This account is active in relation to the balance sheet, an account of business processes. By debit account 20 reflects direct costs associated directly with the production of products, performance of work, provision of services, as well as indirect costs associated with the management and maintenance of the main production and losses from defects. Credit account 20 reflects the actual cost of completed work. They can be written off from account 20 to the debit of accounts 43 “Finished products”, 40 “Product output (works, ...). The balance of account 20 at the end of the month shows the cost of work in progress.
When performing work in stages, account 20 reflects the amount of costs for work performed that was not delivered to the customer.
For example, in the accounting department of PMK Gidrostroy, analytical accounts are opened for account 20 for work objects, highlighting the actual cost of work performed. Analytical accounting by account. 20 are kept in journal order No. 10. In the “Production Costs” section, entries are made to debit the accounts and analytical items of the objects on which the work is carried out. For example, for September 2006 the following entries were made in it:
The following costs were attributed to the Kuzmino-Gat - section of the Tambov Vodokanal project:
1) depreciation of fixed assets according to calculation
— Account debit 20 Credit account 02 for 1454 rubles;
2) materials were written off according to the report of the site foreman
— Account debit 20 Credit account 10 for 300 rubles;
3) deviations in the cost of materials are written off
— Debit account 20 Credit account. 16 for 15 rubles;
4) workers' wages were accrued Debit account 20 Credit account 70 for 31,514.58 rubles;
5) deductions were made to the Unified Social Tax from the accrued salary in the amount of 8193.79 rubles;
— Account debit 20 Credit account 69 for 8193.79 rubles;
6) general business expenses are written off in the share attributable to this facility
— Debit account 20 Credit account 26 for 8760 rubles.
Direct costs are written off according to standards in accordance with SNIP (building codes and regulations). Standards for general business expenses are established on the basis of estimates. The enterprise economist determines the standard coefficient of their distribution. Defects and the costs of correcting them are accounted for on account 28. The cost of final internal defects is estimated at the current rates of direct costs of materials and the basic wages of production workers.
For consolidated cost accounting for all objects, fill out a statement. It indicates the calculation items: materials, wages of production workers, deductions for social needs, losses from defects, returns due to defects. The data in this statement serves as the basis for filling out journal order No. 10 (Appendix 2), section: Calculation of costs of work by economic elements: material costs, labor costs, social contributions, depreciation of fixed assets, other expenses. This information, in turn, is used to fill out the form. No. 5 “Appendix to the Balance Sheet” (Appendix 1).
Accounting for income and expenses at the enterprise is carried out in accordance with PBU 9\99 “Income of the organization” and PBU 10\99 “Expenses of the organization”. PBU 10/99 does not include the following as expenses of an organization:
— contributions to the authorized capitals of other organizations, acquisition of shares of joint-stock companies and other securities not for the purpose of resale;
— payments under commission agreements, agency and other similar agreements in favor of the principal, principal, etc.;
— advance payment for inventories and other valuables, works, services;
— advances, deposits on account of inventories and other valuables, works, services;
— repayment of a loan received by the organization (clause 3 of PBU 10/99).
When recognizing in accounting the amount of revenue from the sale of goods, products, performance of work, provision of services, it is reflected in the credit of subaccount 90-1 and the debit of account 62 “Settlements with buyers and customers.” At the same time, the cost of goods sold, products, work performed, services rendered is written off from the credit of accounts 43 “Finished Products”, 41 “Goods”, 20 “Main Production”, 44 “Sales Expenses”, 26 “General Business Expenses”, etc. to the debit subaccounts 90-2.
Records on open sub-accounts during the reporting period are kept cumulatively, i.e. all sub-accounts; do not close during the year. At the end of each month, account 90 reveals a financial result - profit or loss from the sale of goods, products, performance of work, provision of services, defined as the difference between the amount of sales revenue for the reporting month (credit of subaccount 90-1) and the cost of sales, defined as the amount of debit turnover for the reporting month in subaccount 90-2. The identified financial result is reflected in subaccount 90-9 and written off to account 99 “Profits and losses”.
If revenue exceeds costs, then the organization made a profit in the reporting month:
Debit 90-9 Credit 99
— profit from sales for the current month is reflected.
If sales costs exceed revenue, then the organization has incurred losses:
Debit 99 Credit 90-9
— losses from sales for the current month are reflected.
Thus, at the end of each reporting month there will be a credit balance on subaccount 90-1, a debit balance on subaccount 90-2, and a debit balance on subaccount 90-9. In general, the synthetic account 90 does not have a balance at the reporting date.
For example, PMK Gidrostroy, in accordance with the concluded contract, performed work in December for Znamensky Vodokanal LLC in the amount of 36,229 rubles. The cost of work is 27,868 rubles. VAT – 6521 rub. Calculations are made in stages on the basis of the “Act on the actual volume of contract work performed on individual objects” (Appendix 4).
Also, in 2005, work was completed for Sampursky Water Intake Plot LLC for a total of 169,116 rubles, the cost of the work was 132,020 rubles, VAT on the work performed was 30,441 rubles.
In addition, in 2005, the reconstruction of the water supply system serving the hospital of the Kotovsk City Hospital was completed in the amount of 81,723 rubles, the cost of work amounted to 62,009 rubles, VAT is 14,710 rubles.
These transactions are reflected in the accounting department of PMK Gidrostroy LLC with the following entries:
for the Znamensky Vodokanal project:
— Account debit 62 “Settlements with buyers and customers”, Credit account. 90 “Sales” (subaccount “Revenue”) – 36,229 rubles. – the transfer of the results of completed work to the customer is reflected;
— Account debit 90 “Sales” (subaccount “Cost of sales”), Credit account. 20 “Main production” – 27,868 rubles. – the costs of performing the work are written off;
— Account debit 90 “Sales” (subaccount “VAT”), Credit account. 76 (“VAT calculations”) – 6521 rub. – VAT is charged on the cost of work performed;
for the Sampursky site:
-Debit account 62 Credit account. 90.1 for the amount of revenue 169,116 rubles;
-Debit account 90.2 Credit account 20 for the cost of work performed RUB 132,020;
-Debit account 90.3 “VAT” Credit account. 76 “Calculations for VAT” for the amount of “output VAT” 30,441 rubles;
for the project “Reconstruction of the water supply system of the Kotovsk City Hospital”:
-Debit account 62 Credit account 90.1 for the amount of revenue 81,723 rubles;
-Debit account 90.2 Credit account 20 for the cost of performing work on the facility - 62,009 rubles;
-Debit account 90.3 “VAT” Credit account 76 “Calculations for VAT” for 14,710 rubles.
At the end of the reporting year (as of December 31), all subaccounts opened for account 90 are closed with internal entries for subaccount 90-9:
Debit 90-1 Credit 90-9
— the closure of the “Revenue” subaccount is reflected;
Debit 90-9 Credit 90-2
— the closure of the “Cost of Sales” sub-account is reflected; Debit 90-9 Credit 90-3
— the closure of the “Value Added Tax” subaccount is reflected.
Account 91 summarizes information on other income and expenses (operating, non-operating), except for income and expenses from ordinary activities and emergency ones. Subaccounts 91-1 “Other income”, 91-2 “Other expenses”, 91-9 “Balance of other income and expenses” can be opened to account 91.
Unlike expenses for ordinary activities, other expenses are not transferred to the cost of products (works, services), but are subject to credit to the organization’s profit and loss account (clause 15 of the PBU).
In particular, in PMK Gidrostroy LLC such expenses include:
— expenses for paying interest on loans;
— expenses for paying banks for banking services;
— expenses for the sale (disposal) of fixed assets.
For example, in September 2006, PMK Gidrostroy LLC accrued interest payable for using a loan in the amount of 590.0 thousand rubles, issued at 16% per annum. In accounting, this operation is reflected in the following entry: Debit account 91 (subaccount “Other expenses”) Credit account. 66 “Settlements for short-term loans and borrowings” for 7866.67 rubles.
Non-operating expenses are the second group of expenses of an organization classified as other expenses. They include (clause 12 of PBU 10/99):
— fines, penalties, penalties for violation of contract terms;
— compensation for losses caused by the organization;
- the amount of receivables for which the statute of limitations has expired, and other debts that are unrealistic for collection;
- exchange differences;
— the amount of asset depreciation;
— transfer of funds (contributions, payments, etc.) related to charity, expenses for sporting events, recreation and other similar events;
— other non-operating expenses.
So, for example, the accounting department of PMK Gidrostroy accrued penalties for violation of contract No. 24/k for September 2006 in the amount of 413 rubles.
Debit account 91 Credit account 60 for 413 rub. This transaction is reflected on the basis of an accounting certificate drawn up at the direction of the director.
To record operations for the implementation of work performed at the enterprise under study, the following is kept: journal - order No. 11 (Appendix 6).
Entries for subaccounts 91-1, 91-2, 91-9 are also made cumulatively during the reporting year, i.e. all subaccounts of account 91 are not closed during the year.
At the end of each month, by analogy with account 90, account 91 shows the financial result. To do this, the amounts of other income (total credit turnover for the reporting month of subaccount 91-1) and other expenses (total debit turnover of subaccount 91-2) are compared. The financial result identified in this way is reflected in subaccount 91-9 and written off to account 99:
Debit 91-9 (99) Credit 99 (91-9) - profit (loss) from other income is reflected.
Based on this, at the end of the month, including December 31, there will always be a credit balance on subaccount 91-1, a debit balance on subaccount 91-2, and a debit balance on subaccount 91-9. Synthetic account 91 does not have a balance on the reporting date.
At the end of the reporting year, all subaccounts opened for account 91 are closed with internal entries for subaccount 91-9:
Debit 91-1 Credit 91-9
— the closure of the “Other Income” subaccount is reflected;
Debit 91-9 Credit 91-2
— the closure of the “Other Expenses” subaccount is reflected;
Account 99 is intended to summarize information on the formation of the final financial result of the organization’s activities in the reporting year (Instructions for using the Chart of Accounts). At the same time, analytical accounting for account 99 should ensure the generation of data necessary for drawing up a profit and loss report (form No. 2).
At the end of each month, the financial result (profit or loss) from the sale of goods, products, performance of work, provision of services, as well as the balance of other income and expenses are transferred to account 99.
In addition, the account directly reflects income and expenses associated with emergency circumstances of the organization’s economic activities:
Debit 99 Credit 01,10, 41 - the value of property lost as a result of emergency circumstances is written off;
Debit 10 Credit 99 - materials from the dismantling of property damaged as a result of emergency circumstances were capitalized.
In addition, account 99 reflects income tax payments accrued during the year, as well as the amount of tax penalties due:
Debit 99 Credit 68 subaccount “Calculations for income tax” - income tax accrued;
Debit 99 Credit 68—the amount of tax sanctions has been accrued.
In the analyzed enterprise for 2005 there were no such entries due to the absence of such transactions.
A comparison of debit and credit turnover for the reporting period shows the final financial result - net profit or loss:
ChP(U) = P(U)Pr ± SPDR + ChD-ChR-NP-NS,
where PE (U) is net profit (loss); P (U) Pr - profit (loss) from sales; SPDR - balance of other income and expenses; BH - extraordinary income; CR - extraordinary expenses; NP - income tax; TS - tax sanctions.
At the end of the reporting year, when preparing annual financial statements, account 99 is closed. In this case, by the final entry of December, the amount of net profit (loss) of the reporting year is transferred from account 99 to the credit (debit) of account 84 “Retained earnings (uncovered loss)”:
Debit 99 (84) Credit 84 (99) - reflects the financial result for the reporting year.
Thus, as of January 1, 2005, there should be no balance on account 99.
Analytical accounting data for accounts 90, 91 and 99 serve as the necessary information when filling out the profit and loss report.
On December 31 of each year, when reforming the balance sheet, the amount of net profit (loss) received is written off from account 99 to account 84 “Retained earnings (uncovered loss).”
For the convenience of keeping records of the use of profits, the following sub-accounts can be opened for account 84:
♦ “Profit subject to distribution”;
♦ “Retained earnings”;
♦ “Uncovered loss.”
If, at the end of the reporting year, the organization made a profit, an entry is made in the accounting account to the credit of account 84:
DEBIT 99 CREDIT 84 subaccount “Profit to be distributed”
— reflects the net profit of the reporting year.
If at the end of the reporting year the organization received a loss, then an entry is made in the debit of account 84:
DEBIT 84 subaccount “Uncovered loss” CREDIT 99
— reflects the net (uncovered) loss of the reporting year. The decision on the distribution of net profit is made by the owners (founders) of the organization. Such a decision is usually made at the beginning of the year following the reporting year [41, p.46].
Net profit can be used for:
♦ payment of dividends to shareholders (participants) of the organization;
♦ creation and replenishment of reserve capital;
♦ repayment of losses from previous years.
In the first two cases, the use of net profit is reflected in the debit of account 84:
DEBIT 84 subaccount “Profit to be distributed” CREDIT 75 (70)
— dividends are accrued to the shareholders (participants) of the organization;
DEBIT 84 subaccount “Profit to be distributed” CREDIT 82
— net profit is used to create and replenish the organization’s reserve capital.
If the owners of the organization decided to use net profit to pay off losses of previous years, an entry is made in the accounting to the subaccounts of account 84:
DEBIT 84 subaccount “Profit subject to distribution” CREDIT 84 subaccount “Uncovered loss”
net profit is used to repay losses from previous years.
After the use of profit (repayment of loss) has been reflected in the accounting, the balance in the sub-account “Profit to be distributed” of account 84 shows the amount of retained earnings. This amount can be transferred to the appropriate subaccount:
DEBIT 84 subaccount “Profit subject to distribution” CREDIT 84 subaccount “Retained earnings”
-reflects the amount of retained earnings of the organization. The meeting of shareholders (participants) of the organization may decide not to distribute the profit received at all (or leave some part of it undistributed).
At the general meeting of shareholders it may be decided to use net profit as follows:
5% should be used to replenish reserve capital; 50% will be used to pay dividends to shareholders. Based on this decision in accounting, the use of profit is recorded with the following entries:
DEBIT 84-1 CREDIT 82
funds were allocated to replenish reserve capital; DEBIT 84-1 CREDIT 75
funds were allocated to pay dividends to shareholders; DEBIT 84-1 CREDIT 84-2
reflects the amount of retained earnings.
The current Chart of Accounts does not provide for separate subaccounts for the creation of special-purpose funds, as in the 1992 Chart of Accounts, where account 88 “Retained earnings (uncovered loss)” included subaccounts “Consumption Funds” and “Accumulation Funds”.
However, you can independently organize analytical accounting of the use of profits in such a way as to ensure the receipt of information on the areas of use of funds.
For example, you can open another subaccount for account 84: “Used retained earnings.”
Therefore, by directing retained earnings from previous years to form funds, the following entries can be made in accounting:
DEBIT 84 CREDIT 84 subaccount “Accumulation Fund”
The profit was directed to the accumulation fund;
DEBIT 84 CREDIT 84 subaccount “Social Sphere Fund”
Profit was directed to this fund
DEBIT 84 CREDIT 84 subaccount “Consumption Fund”
reflects the use of net profit to create the fund.
If an enterprise's income over the past year was less than its expenses, it means that the enterprise incurred a loss, which it can write off as expenses over the next 10 years.
The decision on how to pay off the resulting loss is also made by the owners (founders) of the organization (general meeting of shareholders in a closed joint-stock company or open joint-stock company or meeting of participants in an LLC).
The loss can also be repaid through:
♦ targeted contributions from shareholders (participants) of the organization;
♦ reserve capital funds;
In these cases, it is necessary to make entries on the credit of account 84: DEBIT 75 (70) CREDIT 84 subaccount “Uncovered loss”
— targeted contributions from shareholders (participants) of the organization are used to repay the loss;
CREDIT 82 DEBIT 84 subaccount “Uncovered loss”
— reserve capital funds were used to pay off the loss.
If the owners of the organization decided to pay off the loss using retained earnings from previous years, make an accounting entry to the subaccounts of account 84:
DEBIT 84 subaccount “Retained earnings” CREDIT 84 subaccount “Uncovered loss”
— retained earnings from previous years are used to repay the loss.
The loss can also be written off from the balance sheet if the general meeting decides to reduce the authorized capital to the amount of the organization’s net assets.
After the relevant changes have been registered in the constituent documents, the following entries are made:
DEBIT 80 CREDIT 84 subaccount “Uncovered loss”
— the authorized capital is reduced to the amount of the organization’s net assets.
When allocating losses, particular attention should be paid to when a deductible temporary difference arises in the reporting period and when the entity should recognize a deferred tax asset. To calculate the amount of the deferred tax asset, you need to multiply the amount of the deductible temporary difference by the income tax rate (24%). Based on the results of activity during the year, the loss is reflected in the debit of account 99 “Profits and losses” in correspondence with the credit of account 90 sub-account “Profit/loss from sales” or account 91 sub-account “Balance of other income and expenses”.
The transferred tax loss, recognized as a deductible temporary difference, must be reflected separately in analytical accounting under account 99 “Profits and losses”. The organization must reflect the accrual of the deferred tax asset in the debit of account 09 “Deferred tax assets” in correspondence with the credit of account 68 of the sub-account “Calculations for income tax”.
In subsequent reporting periods, the carried forward loss will reduce taxable profit. The deductible difference between them will be reduced or completely eliminated, resulting in a gradual reduction of the deferred tax asset. Amounts by which deferred tax assets are reduced or fully repaid in the reporting period are reflected in the credit of account 09 “Deferred tax assets” in correspondence with the debit of account 68 of the sub-account “Calculations for income tax”.
In 2005, the enterprise we studied ended up unprofitable, so we used information from previous years as examples.
In particular, in PMK Gidrostroy LLC, the decision on the distribution of profits is made by the general meeting of participants (in accordance with paragraph 3 of Article 91 of the Civil Code). The decision is documented in a protocol and, on its basis, the head of the enterprise issues a corresponding order, which is sent to the accounting department.
Using retained earnings, for example, in 2004, PMK created various funds. As you know, there are savings, consumption, social, etc. funds. An accumulation fund is the amounts that an enterprise reserves in order to use them in the future as a financial source of enterprise growth, for example, for the purchase of fixed assets. The social sector fund is used to create recreation centers and camps for the children of employees, and the consumption fund is used, as a rule, for material incentives. In the Chart of Accounts, approved by order of the Ministry of Finance of Russia dated 31.10. 2000 No. 94n does not provide for any subaccounts for account 84. However, this does not mean that they cannot be opened. Each organization in its working chart of accounts can register those sub-accounts that it considers necessary. In the accounting records of PMK Gidrostroy LLC in 2003, for example, the following entries were made:
Debit 84 subaccount. “Retained earnings from previous years” Credit 84 subaccounts. “Accumulation Fund” - for 54,600 rubles;
Debit 84 subaccount. “Retained earnings from previous years” Credit 84 subaccounts. “Consumption fund” - for 32,300 rubles.
At the same time, the formation of funds from retained earnings is not reflected in tax accounting.
Analytical accounting for account 84 is kept in the journal - order No. 12 (Appendix 5). In the enterprise under study, when automating accounting, its form looks like this: on the left side, in a separate column, the numbers of debited accounts are indicated, and in the right - the amounts from the credit of the corresponding accounts.
Chapter 2. Analysis of income and expenses from ordinary activities
(using the example of PMK Gidrostroy)
3
Estimation of income and expenses
The ability to choose methods for assessing income and expenses, first of all, depends on determining the moment of their occurrence (recognition) in accounting. So, for example, a contract for the performance of work is concluded for 100,000 rubles. During the execution of the contract, the scope of work to be performed is specified. As a result, the act is signed for 90,000 rubles. Subsequently, the parties enter into an additional agreement to the contract on the provision of a commercial loan by the customer to the contractor, as a result of which by the time the debt is repaid, its amount increases to 105,000 rubles. Thus, if the timing of recognition of income is determined by the conclusion of the contract, income will be measured at 100,000, and subsequent changes in this amount to 90,000 and 105,000 will be recorded as additional losses (10,000) and profits (15,000). If income is reflected (recognized) in accounting after the contract is executed by the contractor, income is estimated at 90,000, and in the future, a change in its value to 105,000 will be recorded as profit. And finally, in the case where the only basis for recognizing income is the receipt of money from the customer, the amount of income reflected in the accounting records will be 105,000 rubles.
The variety of options existing in theory for assessing income and expenses in the practice of official accounting is limited by the requirements of regulations, which, from the entire range of possible solutions, choose one method or a specified number of them.
Basic accounting documents
What documents can record the company's income and expenses? The essence of these, if we talk about Russian business, as well as the principles for determining income and expenses, are recorded in legislative sources. The accounting in question is generally carried out by enterprises of the Russian Federation according to accounting principles. Russian companies record income and expenses by filling out 2 main documents - a balance sheet and a profit and loss statement.
Both documents, in fact, record the amount of profit resulting from the investment, as well as the costs that are directly related to its formation. The balance sheet records the indicators of retained earnings, the report mainly records the amount of net and reinvested earnings. In this case, retained earnings must correspond to the difference between the figure resulting from the addition of accumulated profits in accordance with the balance sheet at the end and at the beginning of the reporting year.
Accounting for income and expenses of an enterprise is carried out in correlation with the calculation of taxes. At the same time, the size of the base for certain fees most often differs from the profit before taxes. This may be due to the fact that some actual costs may not be taken into account in the firm's cost structure.
Results
The procedure for reflecting income and expenses in official accounting is determined by the requirements of regulatory documents. But even here, with the help of accounting policies, the accountant can, reflecting income and expenses using one of the possible methods, model the picture of the company’s financial position presented in external financial statements. In management accounting, the choice of methods for assessing income and expenses, their recognition and distribution over reporting periods should be determined by the information needs of reporting users. Moreover, this choice may not be limited to one of the possible options.
Definition of income
By income, the Russian legislator understands, first of all, an increase in the commercial benefits of an enterprise due to the acquisition of assets that increase the capital of the corresponding organization, but without taking into account the contributions of the company’s owners. In this case, the company may have income that increases assets temporarily, and therefore cannot be considered income. These can be, for example, advances, various prepayments, excise taxes, amounts subject to transfer to the budget in the form of VAT.
Experts identify the following main criteria for classifying cash receipts as income:
- the company has the right to receive the corresponding revenue by virtue of a signed agreement or other powers;
- the amount of cash receipts can be clearly determined;
- there is confidence that, due to revenue receipts, the organization will receive guaranteed economic benefits;
- revenue comes in exchange for some product or service produced by the company;
- the costs associated with the relevant financial transaction can be clearly recorded.
Thus, accounting for income and expenses in a company is carried out primarily if the former meet the criteria that we outlined above.
