Revenue Recognition

The Revenue recognition principle is a cornerstone of accrual accounting together with matching principle. They both determine the accounting period, in which revenues and expenses are recognized. According to the principle, revenues are recognized when they are (1) realized or realizable, and are (2) earned (usually when goods are transferred or services rendered), no matter when cash is received. In cash accounting - in contrast - revenues are recognized when cash is received no matter when goods or services are sold.