Accounting for revenue correctly is a critical factor in determining the true and fair nature of financial statements of an entity because revenue affects the current financial performance (net income or earnings) and position (net assets) of a company. In other words, not correctly accounting for revenue would lead to a misstatement of the profit and net asset of an entity.
Learn more on the recognition and measurement principles under the International Financial Reporting Standards Framework. Revenue recognition and measurement is covered under International Accounting Standard (IAS) 18.
While other standards exist for specialised revenue transactions, IAS 18 provides the general reporting framework for most types of business sales transactions. Thus, its provisions does not cover transactions with other specific standards. These include accounting for lease transactions, construction contracts, insurance contracts, and dividend from associates, changes in values of financial assets and liabilities and other current assets, changes in fair value of biological assets, initial recognition of agricultural produce and extraction of mineral ores.