Cash Received And Revenue Earned May Happen At Different Times.
Consider a customer advance of RM10,000 received before the goods are delivered or the service is performed.
- Cash received: Money enters the bank and cash flow increases.
- Revenue earned: The agreed goods are delivered or the service is performed, the appropriate revenue is recognised and the related costs are recorded.
The RM10,000 improves the bank balance immediately, but the business may still owe the customer the order, service or a possible refund. Funds may also be needed to complete the work.
Recording the advance as sales too early can overstate profit, hide the remaining customer obligation and place revenue and related costs in different reporting periods.
Before treating a customer receipt as revenue, ask: What has been delivered or performed? What does the business still owe the customer? Have the related costs been recorded in the appropriate period?
Cash received is not automatically revenue earned. Check the transaction stage before reporting the result.