Anyone who has run any sort of a business, or actually anyone who has been involved with work at any point in their lives understands that revenue is the key to keeping in business and building on growth. But when it comes to accounting, the point at which you recognize your revenue can be a challenge and can affect the outlook for your business as a whole. What’s the truth about when your revenue is earned and when you record that?
That, of course, depends on the accounting guidelines that you follow. Accrual accounting, for example, has a different set of principles. That revenue recognition focuses on recording the income after fulfilling the obligations of the contract.
The key to understanding the difference in when you record profits is to know that you can do what you like and what works for your business model as long as you follow accounting principles. This graphic explains them more.