What is the principle of income recognition?

The principle of revenue recognition, along with the principle corresponding, is an important principle in accrual accounting. It is reported that income should be reported when it is earned or in cash accounting when cash payment is made. This helps to determine the accounting period or period in which income and expenditure must be recorded.

General rules in principle of revenue recognition are that income is reported as soon as the goods or services have been completed in exchange for payment. In some cases, they will be reported as soon as the payment is received and cleaned, but it is not always the case. Received cash that has not yet been earned is not recorded as income, but as a responsibility. This means that this money is not recorded as a cash payment until the services offered are provided to the customer.

There are four types of income that must be recorded, as stated in principle, income recognition. The first is the cash pays given in the exchange for goods. This would be recorded either to dATU sales or at the date of delivery. The second is the income obtained from the services for the client and are recorded when these services are complete and charged. Also, income from lending to the company's assets or money raised from the sale of the company must be recorded.

Exceptions to the Principle of Receivative Recognition include reserves sold with a redemption agreement or a refund policy. In both cases, the transaction cannot be completed until the return or return period has passed because there is no way to determine which return will be on the item. Long -term contracts are another exception because it takes time to complete, even if the cash is paid in advance. Sometimes the money will be paid and recorded as different intervals during a large project, sometimes the transaction is recorded by the work is completed.

In some cases, the principle of revenue recognition states that income must be recorded beforebefore any sale was made. For example, in agriculture, revenue must be recorded at the time of harvest, as there is a constant food market, prices are relatively stable and secured and distributions are not very much costing. These provisions must be present in order to count the income before the actual sale.