what is revenue recognition 
revenue recognition is a generally accepted accounting principle gaap that identifies the specific conditions in which revenue is recognized and determines how to account for it revenue is typically recognized when a critical event has occurred when a product or service has been delivered to a customer and the dollar amount is easily measurable to the company investopedia michela buttignolunderstanding revenue recognitionrevenue is at the heart of all business performance regulators know how tempting it is for companies to push the limits on what qualifies as revenue especially when not all revenue is collected when the work is complete for example attorneys charge their clients in billable hours and present the invoice after work is completed construction managers often bill clients on a percentage of completion method the revenue recognition principle a feature of accrual accounting requires that revenues are recognized on the income statement in the period when realized and earned not necessarily when cash is received the revenue generating activity must be fully or essentially complete for it to be included in revenue during the respective accounting period also there must be a reasonable level of certainty that earned revenue payment will be received lastly according to the matching principle the revenue and its associated costs must be reported in the same accounting period the revenue recognition principle of asc 606 requires that revenue is recognized when the delivery of promised goods or services matches the amount expected by the company in exchange for the goods or services 1accounting for revenuerevenue accounting is fairly straightforward when a product is sold and the revenue is recognized when the customer pays for the product however accounting for revenue can get complicated when a company takes a long time to produce a product as a result there are several situations in which there can be exceptions to the revenue recognition principle analysts therefore prefer that the revenue recognition policies for one company are also standard for the entire industry having a standard revenue recognition guideline helps to ensure that an apples to apples comparison can be made between companies when reviewing line items on the income statement revenue recognition principles within a company should remain constant over time as well so historical financials can be analyzed and reviewed for seasonal trends or inconsistencies accounting standards codification asc 606on may 28 2014 the financial accounting standards board fasb and international accounting standards board iasb jointly issued accounting standards codification asc 606 this highlights how revenue from contracts with customers is treated providing a uniform framework for recognizing revenue from this source 2the old guidance was industry specific which created a system of fragmented policies the updated revenue recognition standard is industry neutral and therefore more transparent it allows for improved comparability of financial statements with standardized revenue recognition practices across multiple industries 2there are five steps needed to satisfy the updated revenue recognition principle ifrs reporting criteriathere are certain conditions that businesses must meet as per ifrs requirements according to the ifrs these requirements fall into three different categories that are needed for contracts to exist the table below highlights each one 4performance indicates the seller has fulfilled a majority of their expectations in order to get payment collectability refers to the seller s expectation to be paid measurability on the other hand relates to the matching principle wherein the seller can match the expenses with the money earned from the transaction gaap revenue recognition principlesgenerally accepted accounting principles require that revenues are recognized according to the revenue recognition principle which is a feature of accrual accounting this means that revenue is recognized on the income statement in the period when realized and earned not necessarily when cash is received the revenue generating activity must be fully or essentially complete for it to be included in revenue during the respective accounting period also there must be a reasonable level of certainty that earned revenue payment will be received lastly according to the matching principle the revenue and its associated costs must be reported in the same accounting period 