Academic journal article Journal of Economic and Social Development

On Some Ideas for Improvement of Identification and Recording Gains/losses

Academic journal article Journal of Economic and Social Development

On Some Ideas for Improvement of Identification and Recording Gains/losses

Article excerpt


Accounting is the systematic and comprehensive recording of financial transactions for pertaining to a business. An accounting information system collects and processes transaction data and then disseminates the financial information to interested parties. Accounting information systems are designed to support accounting functions and related activities. Financial accounting focuses on the reporting of an organization's financial information, including the preparation of financial statements, to external users of the information, such as investors, regulators and suppliers. For better results, it is important to have common understanding of basic terms and ways to process transactions. We agree with Mourier (2004) that accounting is a challenging subject requiring much specialist background knowledge, and financial reporting is an area with distinct terminology characteristics.

At the heart of the IFRS Conceptual Framework for Financial Reporting (hereafter the IFRS Framework) are the elements of financial statements (paras. 47-81), namely, assets, liabilities, equity, income and expenses. The IFRS Framework adopts a 'balance sheet approach' in that the definitions of liabilities, equity, income and expenses all follow inexorably from the definition of assets: liabilities are defined to be the opposite of assets, equity is the residual interest in assets having deducted liabilities, and income and expenses are defined as, respectively, increases and decreases in net assets (other than from transactions with equity holders). This balance sheet approach can be viewed simply as an application of the logic of double-entry accounting, which is that assets are sources of value that are necessarily equal to the claims on those sources, namely, equity and liabilities. The aim of current paper is to analyze the definitions and recording process of revenues and gains. The authors of current paper have worked out some suggestions for improving the reporting process taking into account the meanings of income, revenue, gain and profit.


Income may have several meanings. First, income can be used interchangeably with revenue. Second, income may refer to the revenue from sources other than main operating activities (as a secondary type of revenue); for example, interest income, rent income, or commission income. Third, net income refers to the excess of income over expenses. According to the IFRS Framework p. 4.25 "Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants."

In accordance with the IFRS Framework p. 4.29:

The definition of income encompasses both revenue and gains.

According to the IFRS Framework para. 4.29 "Revenue arises in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent". In IAS 18 (para. 7) revenue is defined as "The gross inflow of economic benefits during the period arising in the course of ordinary activities of an entity when those inflows result in increases in equity, other than increases relation to contributions from equity participants". After 1 January 2017, IFRS 15 will replace IAS 18. According to IFRS 15 (Appendix A: Defined terms) revenue is "income arising in the course of an entity's ordinary activities". Because the definition of income will not change, revenue can be defined as the gross amount of economic benefit flowing to an entity from its ordinary business activities that results in increases in equity other than from contributions made by equity holders (Burton, Jermakowicz, 2015, p. 467). Therefore, revenue is understood to be that part of a company's income resulting from its main (= operating) activities. In pure accounting terms, revenue is an increase in assets or decrease in liabilities on the company's books. …

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