Revenue

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Revenue is the price of a good times the quantity sold. It is a seller's overall income before subtracting costs.

The graph of the total revenue of a demand curve which is a straight line, with price on the y axis and quantity on the x axis has the shape of a parabola opening downward. It starts at zero revenue, when quantity is zero and ends at zero revenue when price is zero.

In accounting, revenue also includes the price of services sold (a CPA's fees, for example) and can also include the percentage of completion method whereby revenue is recognized based on the completion of certain milestones in a long term project.

Theoretically, revenue should only be recognized when the following criteria are met:

  1. The final price can be reasonably determined
  2. The costs associated with producing this revenue can be reasonably determined.
  3. The product or process is complete (or milestones have been reached)
  4. There is reasonable expectation of payment from the customers within normal terms of trade.

Many accounting abuses by corporations relate to improper revenue recognition. These can be from relatively simple frauds, such as recording a sale where the product has not been shipped, to relatively complex frauds involving manipulation of assumptions under percentage of completion methodologies.

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