Posted: February 1st, 2023

Main Advantages of Revenue Measurement

A firm from revenue measurement enjoys several benefits.

Profitability: The entity can easily calculate various profitability ratios to assess business performance. The profit ratio is a valuable measure for determining how much profit is left from the revenue. It also gives an overview of how much more a business has to increase its revenue to increase its profit.

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Trends: The sales trends can be analyzed by looking at the revenue of several periods. The owner can easily identify the increase or decrease in the customers and the peak season for increasing the entity’s sales.

Tax Computation: The tax is computed as per the income of the business. In some cases, taxes are also charged as per the revenue of the business. Hence calculation of revenue is necessary.

Financial Statements: The financial statements are prepared using the revenue figure at the top of the income statements. This helps the business in reflecting its true performance to the stakeholders of the business.

Every business entity operates to earn profit. The profit of a business is the amount of revenue left after subtracting all the operating and non-operating expenses. For increasing the income, every business focuses on surging the revenue. Revenue is the amount of money earned after selling the goods or rendering the services of a business to the customers. When a business is engaged in the production and sales of goods, the revenue can be calculated per the units of goods sold. Similarly, in a service entity, the revenue is calculated as per the fulfillment of the performance obligation.

The measurement of revenue is a very important element in assessing the performance of an entity. The amount of revenue plays an important role in determining the profit of an entity. So, an entity must follow the guidelines of IAS 18 for calculating the revenue of the business. The revenue should always be measured at the fair value of the consideration received or to be received from the sale of goods or services. When the revenue is earned but the cash inflow is deferred, the entity must consider the discounting of the revenue as per the reliable discounting rate.

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