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Revenue Recognition

Overview

The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle. They both determine the accounting period in which revenues and expenses are recognized.

Purpose

Revenue recognition addresses a requirement to automatically defer/accrue revenue for a service or subscription type obligation within a sales order.

Revenue Recognition

Companies in industries that sell multiple elements, such as products, services, subscriptions, and so on, must be able to break out multi-element orders so that revenue can be recognized based on a set of company-specific and industry-specific guidelines.

In general, the revenue recognition process can be used to perform these tasks:

  • Allocate revenue, to help ensure that the appropriate revenue price is recognized, based on the value of the components on multi-element orders.
  • Defer revenue, based on a revenue schedule that represents the contractual time frame and percentages for recognizing revenue over time.

The Revenue recognition feature provides a flexible framework that lets you define company-specific rules for recognizing both the revenue price and the revenue schedule.

APQC Framework

Please find below the relevant PCF ID’s.

Level 1 Category: 17058

Level 2 Process Group: 10729