According to the principle, revenues are recognized when they are realized or realizable, and are 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.

When should revenue be recorded or recognized?

The revenue recognition principle states that one should only record revenue when it has been earned, not when the related cash is collected.

When should revenue be ordinarily recognized?

To recognize an item is to record it into the accounting records. Revenue recognition normally occurs at the time services are rendered or when goods are sold and delivered. The conditions for revenue recognition are (a) an exchange transaction, and (b) the earnings process being complete.