Revenue recognition is the accounting process of recognizing revenue earned. This involves recording sales or other transactions as revenue on the company’s financial statements. The goal of revenue recognition is to match expenses with revenues so that a company’s profitability can be accurately determined.
There are two main types of revenue recognition: accrual basis and cash basis. Accrual basis accounting recognizes revenue when it is earned, regardless of when the money is received. Cash basis accounting recognizes revenue only when the money is received.
Revenue recognition is a complex topic, and there are many different rules and regulations that must be followed. Companies should consult with their accounting advisors to ensure that they are in compliance with all applicable laws.