UNIVERSITY OF LAGOS

AKOKA YABA
SCHOOL OF POSTGRADUATE STUDIES
PART TIME 2017/2018 SESSION

NAME: OPARINDE DAVID OLUSANJO

MATRIC NO: 019023167

CORUSE TITLE ADVANCE ACCOUNTING THEORY

COURSE CODE ACC 801

ASSIGNMENT
Critically review the following concepts Revenues, Expenses, Gains
and losses Key definition, Attributes, Examples, Measurement and
Recognition and presentation in the financial statement

LECTURER DR OPEYEMI AKINNIYI

Definition of Revenue, Expenses and Gain and Losses

The relation between balance sheet, income statement, and statement of cash flows is based on a
principle of articulation, in the sense that they are all part of the same measurement process.
(Sterling, 1985), states that articulation is not a convention to be decided by the FASB but rather
a factual question about the behavior of the phenomena Within the articulation principle, there
are two alternative views of earnings: These are the asset and liability view and the revenue /and
expenses view.

The asset-liability view: This is also called the balance sheet or capital maintenance view holds
that revenues and expenses result from changes in assets and liabilities. Revenues are increases
in assets and decreases in liabilities that do not affect Capital. Expenses are decreases in assets
and increases in liabilities arising from the use of economic resources and services during a
given period. In accordance to this view, the income statement is reduced to reporting and
measuring the changes in net assets. Gains are defined as increase in net assets other than
increases from revenue or from changes in capital. Losses are defined as decrease in Net asset
other than decreases from expenses or from change in Capital. Hence Gain and losses constitute
that part of earnings explained by revenue and expenses.

The revenue and expense view: This is also called the income statement or matching view,
holds that revenues and expenses result from the need for a proper matching. According to this
view, Revenue, which encompasses gain and losses, are results from sales of goods and services
and includes sales and exchange of assets other than inventories, interest and dividends earned
on investment and other increases in owners’ equity during a period other than capital
contributions and adjustments. Similarly, expenses comprise all of the expired costs that
correspond to the revenues of the period. If gain and losses are defined as a separate elements of
earning, however, revenue are defined as measures of enterprise output that results from the
production or delivery of goods and rendering of services of services during a period. Similarly
expenses are the expired cost corresponding to the revenue of that period. Gain according to the
revenue and expenses view are defined as excess of proceed over the cost of the asset sold, or as
windfall and other benefits obtained at no cost or sacrifice. Similarly Loses are defined as the
excess over the related proceeds, if any of all or an appropriate portion of the costs of asset sold,
abandoned, or wholly or partially destroyed by casualty. According to this view, gains and losses
are independent from definitions of other elements of financial statement.

Examples and attributes: Revenue includes values of sales, values of service rendered, fees
earned, Interest revenue and interest income. Revenue accounts are credited when services are
performed or billed and therefore will usually have a credit balances. Examples of expense
includes money paid out to suppliers or for product or services from other sources like Rent,
Wages and Salaries. Some expenses are difficult to correlate with revenue, such as
administrative salaries, rent and utilities. These expenses are designated as period costs, and are
charge to expense in the period with which they are associated.

Recognition and measurement:

Revenue recognition principle states that revenue should be recognized and recorded when it is
realized or realizable and when it is earned. However, there are three exceptions to the
recognition principle, some manufacturer may recognize revenue during the production process,
and some companies may recognize revenue after the manufacturing process but before the sales
actually takes place. The last exception to the revenue recognition principle is companies that
recognize revenue when the cash is received. Revenue should be measured at the fair value of
the consideration received or receivable (IAS 18.9).

Recognition of expenses relates to the receipts of income resulting from these expenditures.
According to IFRS and GAAP expenses are recognized in the statement on the basis of a direct
association between the costs incurred and the earning of specific item of income. The expense
recognition states that expenses should be recognized in the same period as the revenue to which
they relate. Expenses should be measured at the fair value of the consideration paid or payable.

The realisation principle is more strictly followed in recognition of gains and losses. Gains are
not generally recognized until an exchange or sale has taken place. However, an increase in the
market value of securities may under some circumstances, be sufficient evidence to recognise
gain. Gain and losses are the opposite financial results occurring through a company’s non
primary operations and production process and as such it is also measured at fair value of
consideration received or receivable and consideration paid or payable.
Presentation in the financial statement:

The financial statements must "present fairly" the financial position, financial performance and
cash flows of an entity. Fair presentation requires the faithful representation of the effects of
transactions, other events, and conditions in accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set out in the Framework. The application of
IFRSs, with additional disclosure when necessary, is presumed to result in financial statements
that achieve a fair presentation. Revenue represents the amounts receivable by the entity for its
own account. Therefore, revenue is stated at its gross amount and is measured before deducting
related costs such as costs for materials and salaries in the statement of profit and loss, where the
entity is having separate statement for other comprehensive income.

Expenses recognised in profit or loss should be analysed either by nature (raw materials, staffing
costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc). [IAS 1.99] If
an entity categorises by function, then additional information on the nature of expenses – at a
minimum depreciation, amortisation and employee benefits expense – must be disclose.

Bibilograph

Ahmed Belkaoui, Multivariated Financial Accounting (Westport, CT: Greenwood Press,

1991).T. A. Lee, "Reporting Cash Flows and Net Realizable Values," Accounting and
Business Research (spring 1981): 163-170.

Ahmed Belkaoui, Public Policy and the Problems and Practices of Accounting (Westport, CT:
Greenwood Press, 1985).

Ahmed Belkaoui, The New Environment in International Accounting: Issues and Practices
(Westport, CT: Greenwood Press, 1988).

Alderman, Guy, and Meak, "Other Comprehensive Bases of Accounting: Alternatives to

GAAP?"

Alderman, Guy, and Meak, "Other Comprehensive Bases of Accounting: Alternatives to

GAAP?"
American Institute of Certified Public Accountants, AICPA Technical Practice Aides, Vol. 1
(Chicago: Commerce Clearing House, Inc., 1985).

American Institute of Certified Public Accountants, AICPA Technical Practice Aides, Vol. 1.

American Institute of Certified Public Accountants, Statement on Auditing Standards No. 14,
Special Reports (New York: American Institute of Certified Public Accountants, 1976).

C. Charzen and Benjamin Benson. "Fitting GAAP to Smaller Businesses," Journal of

Accounting (February 1978): 46-51.

N. A. Wiener and J. G. Birnberg, "Methodological Problems in Functional Fixation Research:

Criticisms and Suggestions," Accounting Organizations and Society (February 1986): 71-
83.

P. E. Spector, "What to Do with Significant Multivariate Effects in Multiple Analysis of

Variance," Journal of Applied Psychology 62 (1977): 62.

Robert R. Sterling, An Essay on Recognition, R. J. Chambers Research Lecture, 1985 (Sydney:

The University of Sydney, Accounting Research Center, 1987),

Wayne C. Alderman, Dan M. Guy, and Dennis R. Meak. "Other Comprehensive Bases of
Accounting: Alternatives to GAAP?" Journal of Accounting (August 1982): 32-41.