Understanding - Revenue Recognition

What is Revenue Recognition?

To understand what is Revenue Recognition, we need to understand what are the basic accounting principles which guide all the accounting standards across the world. There are two basic accounting principles

1. Accrued System
2. Cash System

In Accrued system of accounting principle, as far as revenues are concerned, revenue is recognized with, when it is either realized or realizable no matter when the cash is received.

• Accrued system of accounting

1. The below points make it clear to understand the accrual system of accounting
2. The Accrual Method of Accounting matches revenues when they are earned against expenses associated with those revenues.