What is revenue recognition?

The revenue recognition principle calls for the recognition of revenue in the period when a sale takes place or a service is performed (i.e., when it is earned), regardless of when the actual cash flow from the transaction occurs.  Under accrual basis accounting, revenue is recognized as earned when an entity has essentially done what it is required to do in order to be entitled to the associated benefits (i.e., when the earning process is completed or nearly completed).

Revenue Recognition – US GAAP vs. IFRS
ASC 605-10	IFRS 18
Goods have been deliverer or services have been rendered.	Risks and rewards have been transferred to the buyer.
Persuasive evidence of an arrangement exists.	Evidence of an arrangement is not called for.
Price is fixed or determinable.	Revenues and costs can be reliably measured.
Collectibility is reasonably assured.	Probably that economic benefits will flow to the entity.

The matching principle requires that all costs of generating revenue be accrued and expensed in the same period as the related revenue.  Matching is the relating of expense to the same period as the revenue it generated.  Under accrual basis accounting, expenses are recognized when the revenues they generated are recognized (i.e., expenses are matched with their corresponding revenues).

The revenue recognition and matching principals are key to the accrual basis of accounting.  Accruals accounting requires the recognition of revenue in the period in which it is earned and the matching (assigning) of the expenses that are incurred in the production and sale of goods and services sold, resulting in the revenue that is recognized.