Discuss about the Accounting for Gross Revenue Calculation and Net Revenue Calculation.
Depicting the Accounting Policy that Might be use by CGC for Recording the Revenue at Gross Amount or Net Amount when FB Credit Agreement Becomes Active:
The current scenario mainly states that an effective recoding keeping method could be used by CGC to effectively maintain the transactions conducted on the virtual world. In addition, the scenario effectively depicts that Facebook with CGC will provide the relative credits for purchase of products in the virtual world. Moreover, the scenario also states that Facebook takes the actual cash and provides virtual credited to its users. In addition, Facebook only keeps 30% of the cash that are collected from the users and sends the other 70% to CGC. Radebaugh (2014) stated that companies mainly use different type of accounting method for their virtual, which could in turn help in segregating virtual profits from actual profits. On the other hand, Slemrod (2013) criticises that companies dealing in online shopping system are not able to comprehend the changing business environment.
Gross revenue calculation and net revenue calculation is mainly stated, which could be used by CGC for effectively recording. However, the income of CGC has effectively divided its revenue in 70% (CGC) and 30% (Facebook). However the income that is been generated by the company is mainly provided by Facebook after sale of credits. Thus, the company might effectively us the net revenue system to depict its financial statement and portray the overall income that is been generated from sale of Facebook credits. In this context, Cooper, Edey and Peacock (2013) stated that net revenue method is mainly used by companies that have a fixed commission on its sales. On the other hand, Bucheli et al. (2013) criticises that net revenue system mainly loses its friction if the company does not operate under commission method.
The scenario also depicts that Facebook, while receiving payment from its clients incurs a financing cost. The financing cost mainly occurs from PayPal, which is 3.5% of the gross amount paid by its customers. However, the fees that is been given to PayPal is effectively paid by Facebook as the cash transaction is the companies responsibility. However, the service charge is mainly deducted from the gross income that is generated from sales of Facebook credits. In addition, charges are only conducted on credit cards and PayPal transactions, which could change the overall net revenue that is been generated by both Facebook and CGC. Weil, Schipper and Francis (2013) mentioned that net revenue method does not allow the company to adjust the overall expenses that is been incurred from online payments.
Thus, after the effective evaluation of the scenario CGC needs to use the gross revenue method to depict the exact expenses incurred of the transaction that is been conducted from PayPal and credit cards. The use of gross revenue calculation method could help CGC to segregate the expenses of 3.5% for each transaction and divide the exact amount of net revenues. In addition, as per the evaluation 2014 revenue should be recorded based on gross amount to depict the exact net revenue generated from transactions after the FB credits agreement have been active.
Bucheli, M., Lustig, N., Rossi, M. and Amábile, F., 2013. Social Spending, Taxes, and Income Redistribution in Uruguay. Public Finance Review, p.1091142113493493.
Cooper, R., Edey, H.C. and Peacock, A.T., 2013. National income and social accounting. Routledge.
Radebaugh, L.H., 2014. Environmental factors influencing the development of accounting objectives, standards and practices in Peru. The international Journal of Accounting Education and Research. Urbana, 11(1), pp.39-56.
Slemrod, J., 2013. Buenas notches: lines and notches in tax system design.eJournal of Tax Research, 11(3), p.259.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.