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The Corporate Finance Institute
Accounting
Revenue Recognition
What is the revenue recognition principle?
The revenue recognition principle dictates the process and timing 
of which revenue is recorded and recognized an item in the financial 
statements. Theoretically, there are multiple points in time at which 
revenue could be recognized by companies, and generally speaking, 
as revenue is recognized earlier, it is said to be more valuable to the 
company yet a risk to reliability.
In accounting, revenue recognition is one of the areas that is most 
susceptible to manipulation and bias. In fact, it is estimated that 
a significant portion of all accounting fraud stems from revenue 
recognition issues given the amount of judgment involved. 
Revenue Recognition criteria
According to IFRS standards, all of the following five conditions must be 
met for a company to recognize revenue:
•
There is a transfer of significant risks and rewards associated with
ownership.
•
There is a loss of continuing managerial involvement or control to the
degree usually associated with ownership.
•
The amount of revenue inflow can be measured reliably.
•
It is probable that economic benefits will flow to the seller.
•
The costs incurred or the cost to be incurred can be measured reliably.
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corporatefinanceinstitute.com
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The Corporate Finance Institute
Accounting
Revenue recognition for the sale of goods
For the sale of goods, most of the time, revenue is recognized upon 
delivery. This is because, at the time of delivery, all the five criteria are 
met. An example of this may include Whole Foods recognizing revenue 
upon the sale of groceries to customers.