Governments often collect cash or must record receivables before revenues are to be recognized in a governmental fund. What determines whether a liability or a deferred inflow or resources is reported in these various situation?

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Preston Watson

Social Studies

17 April, 06:37

Governments often collect cash or must record receivables before revenues are to be recognized in a governmental fund. What determines whether a liability or a deferred inflow or resources is reported in these various situation?

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Sanchez · Answer 1

If revenue is not recognized by government or delayed to a future period, it must be reported as a liability or deferred inflow.

Revenue recognition is delayed in situations where the revenue is not available or not collected by year end or soon enough. Also, if there is an imposed tax revenue levied to finance operations of a future year. And when revenue is collected in advance, and there is no performance obligation to earn the revenue.

Delaying revenue recognition can also occur in a situation when cash is collected or an established legal claim to resources results in reporting a liability i. e an unearned revenues.