Revenues should be recognized when they are earned and can be reliably measured.
When it comes to recognizing revenues, there are certain principles that need to be followed.
The revenue recognition principle states that revenue should be recognized when it is earned and can be reliably measured.
This means that revenue should be recognized when the goods or services are delivered to the customer and the payment is reasonably assured.
There are different methods of recognizing revenue, such as the cash basis and the accrual basis.
Under the cash basis, revenue is recognized when the cash is received. Under the accrual basis, revenue is recognized when it is earned, regardless of when the cash is received.
For example, let's say a company sells a product to a customer in Week 5, but the customer pays for it in Week 6. Under the accrual basis, the company would recognize the revenue in Week 5 when the product is delivered, even though the payment is received in Week 6.