Revenue recognition is a GAAP principle that determines when and how revenue is recognized. It requires recognizing revenue when goods or services are realized and earned, regardless of cash receipt. The matching principle ensures that revenue and associated costs are reported in the same accounting period.

Recognizing revenue

When booking an invoice, the total amount is recognized. Recognition split total amount into sales income, tax and deferred.

sales income	tax	deferred
12.000	2.400	subject to a strategy

As every month close, revenue is shifted from deferred revenue to income by debitting income and credit deferred revenue.

Strategies

All of the following examples are based on a total of 12.000 sold on the 20th of january.

strategy	description	example
none	no revenue is recognized
even distribution	revenue is recognized evenly every month	1.000 is booked as income in january. 1.000 is deferred monthly for the following 11 months.
exact daily accrual	revenue is recognized by the exact number of days per month	1.019 is booked as income in january (31 days). 921 is deferred in february (28 days) etc.
daily accrual	revenue is recognized by the exact number of days remaining per month	362 is booked as income in january (11 days). 921 is deferred in february (28 days) etc. 656 is deferred (20 days) will fall onto january the following year.

Each strategy is examplified below.

Even distribution

Algorithm will be calculated as 12.000 / 12.

month	jan	feb	mar	apr	may	jun	jul	aug	sep	oct	nov	dec
days	31	28	31	30	31	30	31	31	30	31	30	31
income	1.000	0	0	0	0	0	0	0	0	0	0	0
deferred	0	1.000	1.000	1.000	1.000	1.000	1.000	1.000	1.000	1.000	1.000	1.000

Exact daily accrual

Algorithm will be calculated as 12.000 / 365 x days.

month	jan	feb	mar	apr	may	jun	jul	aug	sep	oct	nov	dec
days	31	28	31	30	31	30	31	31	30	31	30	31
income	1.019	0	0	0	0	0	0	0	0	0	0	0
deferred	0	921	1.019	986	1.019	986	1.019	1.019	986	1.019	986	1.019

Daily accrual

Algorithm will be calculated as 12.000 / 365 x days.

month	jan	feb	mar	apr	may	jun	jul	aug	sep	oct	nov	dec	jan
days	11	28	31	30	31	30	31	31	30	31	30	31	31
income	362	0	0	0	0	0	0	0	0	0	0	0	0
deferred	0	921	1.019	986	1.019	986	1.019	1.019	986	1.019	986	1.019	658

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Recognition

Recognizing revenue

Strategies

Even distribution

Exact daily accrual

Daily accrual

​Recognizing revenue

​Strategies

​Even distribution

​Exact daily accrual

​Daily accrual

Recognizing revenue

Strategies

Even distribution

Exact daily accrual

Daily accrual