Revenue Recognition Essay

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Revenue recognition is an accounting principle under generally accepted accounting principles (GAAP) that determines the specific conditions under which revenue is recognized or accounted for. Generally, revenue is recognized only when a specific critical event has occurred and the amount of revenue is measurable (Investopedia, 2017).
The revenue recognition principle is a basis of accrual accounting together with the matching principle. They both determine the accounting period, in which revenues and expenses are recognized. According to the principle, revenues are recognized when they are realized or realizable and are earned (usually when goods are transferred or services rendered), no matter when cash is received. On the other hand, in …show more content…

However, previous revenue recognition guidance differs in Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS)—and many believe both standards were in need of improvement (FASB, 2017).
In 2002 the FASB and IASB agreed to work together to collaborate a converged revenue recognition standard addressing the many inconsistency in GAAP rules-based standards that contained over 200 specific requirements relating to revenue recognition compared to IASB limited requirements (Bloom & Kamm, 2014) . Their goal was to develop a more robust and consistent framework for revenue recognition, as well as to increase the comparability of revenue recognition practices across entities, countries and industries (Streaser, Zaldivar, & Zhang, …show more content…

These varying standards have created inconsistencies between the reporting of financial statements.
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) collaborated to develop a compatible set of accounting standards that would provide one framework to solve this problem. The team introduces initial drafts of new revenue recognition standard during 2010 and 2011. The final standard was issued on May 28th, 2014.
The new standard adopts a contract and control based approach. This meant that an entity was required to identify whether a contract exists and allocate the estimated transaction price to separate performance obligations identified in the contract. In addition, revenue was to only to be recognized after control of the promised goods and services are transferred to the customers and performance obligation has been

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