Accounting Concepts

Revenue Recognition: Its Relevance and Significance

In the words of Kimmel, Weygandt and Kieso (2008), "the revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned." Unlike is the case in the cash basis of accounting, revenue under the accrual accounting basis is recognized on the sale of a certain commodity or the performance of a given service. Under the cash basis of accounting, the recording of revenue according to Kimmel, Weygandt and Kieso (2008) takes place when cash is received. Further, the authors point out that in this case, the recording of expenses takes place after cash is paid out.

It should be noted that alongside other accounting rules and principles, revenue recognition remains one of GAAP's most important standards. In most cases, companies do not receive payment for goods sold at the exact time of sale. This is more...
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