Accounting › Section H · Accounting for receivables › Topic H.1
The revenue recognition principle
Revenue is usually the largest number on an income statement, and deciding when it has been earned is one of the hardest calls in accounting. US GAAP answers that question with a single five-step model that applies to almost every sale a business makes.
In this topic
- When has a sale really happened?
- The principle and the standard behind it
- Steps 1 and 2: the contract and the promises
- Steps 3 and 4: price and allocation
- Step 5: a point in time or over time
- Worked example: a bundled sale
- Matching the costs of a sale
- Worked example: credit and card sales
- Cash first: unearned revenue and gift cards
- Common mistakes to avoid
- Key takeaways
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