Revenue Recognition In Accounting Definition

Revenue recognition principle definition.

Revenue recognition in accounting definition. The revenue recognition concept is part of accrual accounting meaning that when you create an invoice for your customer for goods or services the amount of that invoice is recorded as revenue at. This is part of the accrual basis of accounting as opposed to the cash basis of accounting. The intent of revenue recognition is to do so in a manner that reasonably depicts the transfer of goods or services to customers for which consideration is paid that reflects the amount to which the seller expects to be entitled. Revenue recognition is a generally accepted accounting principle gaap that identifies the specific conditions in which revenue is recognized.

Revenue is generally measured or recognized when sometime crucial might have happened to the firm and the revenue amount is calculable. Revenue recognition is a generally accepted accounting principle gaap which decides on the particular requirements for the recognition of or the accountancy of revenue. In other words companies shouldn t wait until revenue is actually collected to record it in their books. The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle they both determine the accounting period in which revenues and expenses are recognized.

Revenue recognition is an accounting principle that outlines the specific conditions under which revenue is recognized. Revenue should be recorded when the business has earned the revenue. The revenue recognition principle states that revenue should be recognized and recorded when it is realized or realizable and when it is earned. In theory there is a wide range of potential points at which revenue can be recognized.

According to the principle revenues are recognized when they are realized or realizable and are earned usually when goods are transferred or services rendered no matter when cash is received.