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The Corporate Finance Institute Accounting
Revenue Recognition
To learn more, please
check out our free online What is the revenue recognition principle?
accounting courses The revenue recognition principle dictates the process and timing
of which revenue is recorded and recognized an item in the financial
View courses statements. Theoretically, there are multiple points in time at which
revenue could be recognized by companies, and generally speaking,
as revenue is recognized earlier, it is said to be more valuable to the
company yet a risk to reliability.
In accounting, revenue recognition is one of the areas that is most
susceptible to manipulation and bias. In fact, it is estimated that
a significant portion of all accounting fraud stems from revenue
recognition issues given the amount of judgment involved.
Revenue Recognition criteria
According to IFRS standards, all of the following five conditions must be
met for a company to recognize revenue:
• There is a transfer of significant risks and rewards associated with
ownership.
• There is a loss of continuing managerial involvement or control to the
degree usually associated with ownership.
• The amount of revenue inflow can be measured reliably.
• It is probable that economic benefits will flow to the seller.
• The costs incurred or the cost to be incurred can be measured reliably.
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