Revenue recognition refers to the time when revenue is recorded. Revenue recognition should address two issues: first, timing; second, measurement. Timing refers to when the revenue is recorded in the books, such as the sale of goods (or long-term project) is recognized before the sale, sale, or after the sale of revenue; measurement refers to the amount of what is registered, whether it is based on the gross method, or by the net method, labor income according to the percentage of completion method, or according to the completion of the contract method.
Revenue is said to be realizable when a business has used its goods or services in exchange for cash; when a business's goods or services are used in exchange and the assets exchanged are readily convertible into book amounts of cash or cash claims; and when a business has substantially completed the efforts necessary to earn revenue (e.g., it has sent out the goods or supplied the services) and no significant post-sale costs are expected to be incurred, i.e., earning revenue is complete or substantially complete. Under this principle, revenue earned from the sale of goods is generally recognized on the date of sale (usually the date on which the goods are shipped to the customer); revenue earned from the rendering of services is generally recognized when the responsibility for providing the service to the customer has been discharged and constitutes a charge for the service to the customer; and revenue earned from the use of the assets of the enterprise for the benefit of others is generally recognized incrementally, over time, or as part of the process of using the assets.