Revenue recognition
Financial Accounting glossary · Revenue Recognition
Definition
Process of recording revenue when earned per the five-step framework of ASC 606.
Revenue recognition in plain English
Revenue recognition is the rulebook for WHEN a company is allowed to officially count a sale as revenue — and the answer is when it has actually delivered what it promised, not just when cash lands in its hands. If a gym sells you a $120 yearly membership up front, it can't claim all $120 today; it 'earns' about $10 each month as it actually provides the gym. The official U.S. framework (called ASC 606) walks through five steps — spot the contract, identify what was promised, set the price, split the price across the promises, and record revenue as each promise is fulfilled. This stops companies from faking a great month by booking money they haven't truly earned yet.
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