What Is Revenue Recognition?
The accounting principle that determines when earned income is recorded on the books.
Detailed Explanation
Under accrual accounting, revenue is recognized when performance obligations are satisfied, not necessarily when cash is received. Standards like ASC 606 govern the rules.
Example
A software company recognizes subscription revenue ratably over the twelve-month contract period.
Why It Matters
Incorrect recognition distorts financial statements and can trigger compliance issues.
Related Resources
Related Accounting Basics Terms
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