What is revenue recognition?
Revenue recognition is the set of accounting rules that decide when revenue counts as earned, generally as the company delivers the promised goods or services to the customer. In the US the rules sit in ASC Topic 606, introduced in 2014 alongside the international standard IFRS 15. Revenue is recognized as each promise is fulfilled, at the amount the company expects to be entitled to.
Why it matters to a revenue leader
Revenue recognition decides when your wins show up in the numbers the board sees. IFRS 15 sets out five steps: identify the contract, identify each distinct promise in it, set the price, allocate the price across the promises, and recognize revenue as each promise is satisfied. A contract that bundles installation, monitoring and inspections may therefore be split three ways. Terms your sellers agree to, such as acceptance clauses, bundled free service or variable fees, can delay revenue or change how much is recognized. Have finance review unusual terms before signature.
Example
A security integrator sells a system installation, a year of remote monitoring and two inspections in one contract. Finance allocates the price across the three promises. The installation share is recognized when the system is handed over, the monitoring share month by month, and each inspection share when the visit is complete.
"Which terms in our standard contract change when revenue is recognized, and does every seller know them?"
Sources
- IFRS 15 Revenue from Contracts with Customers (IFRS Foundation) checked 9 Oct 2026
- 1.2 Key Provisions of the Revenue Standard (Deloitte Accounting Research Tool) checked 9 Oct 2026
- Revenue Recognition Principle (Corporate Finance Institute) checked 9 Oct 2026