What Is Revenue and Why Is It Important?

No, this is not your beginner’s course in business or accounting, but a post to get you thinking about how you and your company will handle the new revenue recognition guidance issued by the Financial Accounting Standards Board (the FASB) last year.

Revenue, and its misrepresentation — call it misuse — is one of the most prevalent causes of financial statement fraud there is, and it lands more CEOs and CFOs in prison than any other type of fraud.

Whistleblowerstoday.com estimates that 40% of all financial statement fraud involves revenue recognition schemes.

My goal in this, and future posts, is to bring to light some of the key changes being made by the US accounting standards board, the FASB, as a result of the issuance of ASC 606 – Revenue from Contracts with Customers.

So, What Is Revenue?

Merriam-Webster’s defines revenue as “money made by or paid to an organization or business.”

The FASB, in ASC 606, defines revenue as “inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entities ongoing major or central operations.”

Seems simple enough, but what really is revenue? And, how do you recognize revenue?

Revenue is money you make as a result of your primary business activity whether that is selling cars, selling software, providing consulting services or providing healthcare services.

The key here, then is defining your “major or central operations.” What is your core business? Herein lies the first step in defining revenue. For some this may be very simple, but for others this can be complex and may require in depth thought an analysis.

So, I leave it to you…What is revenue in your business?

Need help defining revenue in your business? Let’s chat. Schedule a free consultation today.

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Susan Nieland

Susan is a CPA, financial executive, and founder of CFO2U. A former member of the U.S. Air Force, Susan has a 20+ year track record of serving small to mid-size growth companies, both publicly traded and privately held. She has a sense of humor and positive outlook on life and enjoys looking for creative ways to solve every day challenges in finance and accounting.

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