Revenue Recognition

Revenue recognition is the accounting principle that determines when revenue should be recorded in the books.

Explanation:
Under accrual accounting, revenue is recognized when it is earned, not when payment is received.
According to IFRS 15 / GAAP, revenue must meet certain criteria (performance obligation satisfied, amount measurable, etc.).

Example:
A software company delivers a product in March, even if the payment arrives in April. Revenue is recorded in March.

Importance:
Ensures financial statements show revenue in the correct period, aiding transparency.

Common Confusion:
Many think revenue is recorded when cash is received—this applies only to cash basis accounting.