Definition of Revenue Recognition

Revenue Recognition

The act of recording revenue in the financial statements. revenue should
be recognized when it is earned and realized or realizable.

Matching Principle

An accounting principle that ties expense recognition to revenue recognition,
dictating that efforts, as represented by expenses, are to be matched with accomplishments,
that is, revenue, whenever it is reasonable and practicable to do so.

Side Letter

A separate agreement that is used to clarify or modify the terms of a sales agreement.
Side letters become a problem for revenue recognition when they undermine a sales agreement
by effectively negating some or all of an agreement's underlying terms and are maintained
outside of normal reporting channels.

Industrial revenue bond (IRB)

Bond issued by local government agencies on behalf of corporations.

Revenue bond

A bond issued by a municipality to finance either a project or an enterprise where the issuer
pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital
revenue bonds and sewer revenue bonds.

Revenue fund

A fund accounting for all revenues from an enterprise financed by a municipal revenue bond.

Total revenue

Total sales and other revenue for the period shown. Known as "turnover" in the UK.

NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)

Revenue

Income earned from the sale of goods and services.

Revenue

Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term sales.

Unearned revenue

Money that has been paid by customers for work yet to be done or goods yet to be provided.

revenue-driven expenses

Operating expenses that vary in proportion to
changes in total sales revenue (total dollars of sales). Examples are sales
commissions based on sales revenue, credit card discount expenses, and
rents and franchise fees based on sales revenue. These expenses are one
of the key variables in a profit model. Segregating these expenses from
other types of expenses that behave differently is essential for management
decision-making analysis. (These expenses are not disclosed separately
in externally reported income statements.)

incremental revenue

the revenue resulting from an additional contemplated sale

revenue center

a responsibility center for which a manager is accountable only for the generation of revenues and has no control over setting selling prices, or budgeting or incurring costs

Recognition

The act of verifying the existence of a business transaction by recording it
in the accounting records.

Revenue

An inflow of cash, accounts receivable, or barter from a customer in exchange
for the provision of a service or product to that customer by a company.

Unearned revenue

A payment from a customer that cannot yet be recognized as earned
revenue, because the offsetting service or product for which the money was paid has
not yet been delivered.

Internal Revenue Code

Refers to all federal tax laws as a group.

Internal Revenue Service

A federal agency empowered by Congress to interpret and enforce tax-related laws.

Fictitious Revenue

revenue recognized on a nonexistent sale or service transaction.

Premature Revenue

revenue recognized for a confirmed sale or service transaction in a period
prior to that called for by generally accepted accounting principles.

Realizable Revenue A revenue transaction where assets received in exchange for goods and

services are readily convertible into known amounts of cash or claims to cash.

Realized Revenue

A revenue transaction where goods and services are exchanged for cash or
claims to cash.

Sales Revenue Revenue recognized from the sales of products as opposed to the provision of

services.

Service Revenue

revenue recognized from the provision of services as opposed to the sale of
products.

Matching concept

The accounting principle that requires the recognition of all costs that are associated with
the generation of the revenue reported in the income statement.

Matching principle

The process of linking recognized revenue to any associated
costs, thereby showing the net impact of all transactions related to the recognition
of revenue.

Real Actions (Earnings) Management

Involves operational steps and not simply acceleration
or delay in the recognition of revenue or expenses. The delay or acceleration of shipment would
be an example.

Temporary Difference

A difference between pretax book income and taxable income that
results from the recognition of revenues or gains and expenses or losses in different periods in the
determination of pretax book and taxable income. Temporary differences give rise to either
deferred tax assets or liabilities.

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