Revenue Recognition

Loading the player...

What is 'Revenue Recognition'

Revenue recognition is an accounting principle under generally accepted accounting principles (GAAP) that determines the specific conditions under which income becomes realized as revenue. Generally, revenue is recognized only when a specific critical event has occurred and the amount of revenue is measurable.

BREAKING DOWN 'Revenue Recognition'

For most businesses, income is recognized as revenue whenever the company delivers or performs its product or service and receives payment for it. However, there are several situations in which exceptions may apply. For example, if a company's business has a very high rate of product returns, revenue should only be recognized after the return period expires.

Companies can sometimes play around with revenue recognition to make their financial figures look better. For example, if XYZ Corp. wants to hide the fact that it is having a bad year in sales, it may choose to recognize income that has not yet been collected as revenue in order to boost its sales revenue for the year.

RELATED TERMS
  1. Revenue

    The amount of money that a company actually receives during a ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's ...
  3. Accrued Revenue

    An asset class for goods or services that have been sold or completed ...
  4. Marginal Revenue - MR

    The increase in revenue that results from the sale of one additional ...
  5. Operating Revenue

    Income derived from sources related to a company's everyday business ...
  6. Top Line

    A reference to the gross sales or revenues of a company, or an ...
Related Articles
  1. Investing

    Understanding Revenue Recognition

    Revenue recognition is an accounting term describing how and when a company records revenue in its accounting records.
  2. Investing

    What does Deferred Revenue Mean?

    Deferred revenue is advanced payments received by a company for products or services that it has not yet rendered or shipped. Another term for deferred revenue is unearned revenue. Whereas normal ...
  3. Managing Wealth

    Revenue Analyst: Job Description & Average Salary

    Learn what a revenue analyst does and what skills are needed to succeed in the position. Determine the education and experience required to work in this field.
  4. Managing Wealth

    Revenue Analyst: Career Path & Qualifications

    Learn more about the duties of a revenue analyst and the qualifications needed for the position, along with the career path for these professionals.
  5. Investing

    What Is The Difference Between Revenue And Income?

    The average person uses revenue and income in interchangeable ways. But these terms refer to very specific, and different, concepts.
  6. Investing

    What's Marginal Revenue?

    In microeconomics, marginal revenue is the additional revenue generated by increasing sales revenue by one unit. Another way of saying this is that the marginal revenue is the revenue generated ...
  7. Investing

    S&P 500 Index: A Revenue Case Study

    Discover the breakdown of aggregate total revenue of S&P 500 companies, including how much revenue is earned by country, industry and geographic location.
  8. Investing

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  9. Investing

    Creative Accounting: When It's Too Good To Be True

    Accounting practices have matured, but there are still plenty of ways that companies can disguise their financial results.
  10. Markets

    S&P 1500 Index: A Revenue Case Study

    Learn what comprises the S&P 1500 and how analysts use revenue trends to benchmark against the performance of a portfolio or single stock investment.
RELATED FAQS
  1. How is deferred revenue treated under accrual accounting?

    Learn deferred revenue and its treatment under accrual accounting and why various revenue recognition methods result in different ... Read Answer >>
  2. What are the FASB guidelines surrounding revenue recognition?

    Find out how the Financial Accounting Standards Board regulates a firm's ability to recognize revenue to promote accuracy ... Read Answer >>
  3. What are the advantages and disadvantages of horizontal integration?

    Understand the criteria for recognizing revenue recognition. Learn the principles behind when a company can consider its ... Read Answer >>
  4. When should a company recognize revenues on its books?

    When a company makes revenues from its operations, it must be recorded in the general ledger and then reported on the income ... Read Answer >>
  5. What is the difference between revenue and sales?

    Learn to distinguish between a company's revenue and its sales, and see why the distinction is important when analyzing a ... Read Answer >>
  6. What types of revenue are taxable?

    Learn about all the various types of taxable corporate revenue and how different revenues are designated and differentiated ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center