Introduction to Revenue Recognition

What you will learn to do: Recognize revenue received on account

A woman holding a bar graph with bars steadily increasing.

Revenue is the inflow of assets from the sale of goods and services to customers and is measured by the expected receipt of cash from customers. It is one of the most important measures used by both managers and investors in assessing a company’s performance and prospects.

Accrual accounting is based on the principle that revenues are recognized when earned (a product is sold or a service has been performed), regardless of when cash is received. For instance, assume a company performs services for a customer on account. Although the company has received no cash, the revenue is recorded at the time the company performs the service. Later, when the company receives the cash, no revenue is recorded because the company has already recorded the revenue.