Revenue Recognition
The accounting principle governing when revenue can be booked on the income statement. Under current GAAP (ASC 606), revenue is recognized when control of the product or service transfers to the customer, in an amount that reflects the consideration the company expects to be entitled to receive. The principle replaces a long history of industry-specific rules and is the foundation of earnings quality — aggressive interpretations (booking long-dated contracts upfront, recognizing revenue before customer acceptance, channel-stuffing distributors) inflate current-period earnings at the cost of future quarters. The diagnostic for aggressive recognition is receivables growing materially faster than revenue over two or more consecutive quarters.
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Related terms
Accounts Payable · Adjusted EBITDA · Adjusted EBITDA Ex-SBC · ADR · ARPU · Average Length Of Stay
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