Revenue Recognition 

Revenue Recognition is an accounting principle that dictates when and how a business should record its earned revenue. According to the accrual basis of accounting, revenue is recognized when it is earned and realizable, regardless of when cash is received. 

The Five-Step Revenue Recognition Model (per IFRS 15/ASC 606) involves: 

  1. Identifying the contract with a customer. 

  2. Identifying performance obligations in the contract. 

  3. Determining the transaction price. 

  4. Allocating the transaction price to performance obligations. 

  5. Recognizing revenue when (or as) the performance obligations are satisfied. 

This principle ensures that revenue is reported accurately in financial statements, reflecting a company’s true financial performance. It’s particularly important for subscription, SaaS, and long-term project-based businesses, where payments and service delivery are often spread across multiple reporting periods.