Revenue recognition
What is Revenue Recognition?
Revenue recognition is an accounting principle that determines how and when revenue should be recorded in financial statements. It helps ensure that businesses report income in a consistent, transparent, and accurate way. Since there can be many stages in the customer journey where revenue might be recognised, having a standard approach is essential. Consistency makes it easier for analysts, stakeholders and regulators to compare financial performance across companies and industries. It also helps businesses identify trends, measure KPIs accurately, and flag any reporting discrepancies over time.
What is the updated revenue recognition principle?
The updated guidance for revenue recognition is based on ASC 606, introduced in 2014 by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). This framework provides a universal method for recognising revenue across all industries, whether the business is public or private.
ASC 606 outlines five steps businesses must follow to comply:
This principle applies to any company that enters into contracts with customers to provide goods or services, including many in the eCommerce and subscription space. By following ASC 606, businesses improve the transparency and comparability of their financial statements, which supports better decision-making and stakeholder confidence.
