Recognising revenue as Dave said is simple accounting; i.e. you don’t recognise revenue until its earned (earned=service provided). However, the article raises a good point on cash flow which is based on receipt and payment of cash (earned or not) but his timing is very misleading. Using his own e.g. of mid-September, in my 20 years in Finance I cannot remember the last time I paid money without an invoice. Even if contract is signed, invoice raises (AR takes its couple of days), AP processes (it takes a couple of weeks) and payment cycles are not daily for most companies (but scheduled). What I am trying to say is even with the most effective AP and AR team unlikely anything will have hit the cash flow published so far (latest 30 Sept 17)
The next one yes (31 December) but then we will have to make assumptions about the payment term, some may be monthly, quarterly and may be one year in advance (I seriously doubt 3 years upfront…I would never do that unless at a massive discount). Even if we assume an even mix of monthly, quarterly and yearly, even Dec-17 quarter will not be significant in term of cash receipts, but we should see an increase from Sept 30 quarter.
Theory is valid, timing very very misleading and assumptions made with cash receipts are unreasonable given BUD has explained timings on many occasions. Good article, Save it and read again after June 2018 4C then it will be more valid.
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- Interesting read...
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