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Based on GAAP accounting principles,revenue can be recognized at one critical event in the chain of activities, issues like production, delivery or cash collection.
Also revenue can be recognized on a basis consistent with effort expended or a completed-contract method or percentage-of-completion method.
A plan that will result in some revenue being recognized with every activity in the chain. A company must carefully make an accounting choice based on its circumstances, and use this policy on a consistent basis.
Revenue recognition is an accounting principle under generally accepted accounting principles (GAAP) that determines the specific conditions under which income becomes realized as revenue. Generally, revenue is recognized only when a specific critical event has occurred and the amount of revenue is measurable.
For most businesses, income is recognized as revenue whenever the company delivers or performs its product or service and receives payment for it. However, there are several situations in which exceptions may apply. For example, if a company's business has a very high rate of product returns, revenue should only be recognized after the return period expires. Companies can sometimes play around with revenue recognition to make their financial figures look better.
