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7 April, 2016 - 15:18

For most businesses, recognition of revenue is based on when the revenue has been realized, that is, when a price has been agreed with the purchaser and the seller has completed all obligations. Few businesses rely on collection or receipt of payment. For some businesses, revenue recognition is spread over time as in the installment or time-of-completion method. All costs directly associated with a given revenue must be matched with that revenue. Some expenses are not associated with specific revenue items but with a given time period. Expenditures, for instance for plant asset, must be allocated over their useful life and remain as unexpired cost or assets.