Last time we learned about matching expenses with revenues. But here's the flip side question: when should we actually recognize that revenue in the first place?

Revenue recognition determines the "when" and "how much" of recording sales, which then drives everything else under matching.

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Why do you think the timing of revenue recognition would affect the matching principle?

Revenue recognition isn't just about collecting cash. A company might receive payment months before delivering service, or deliver service months before getting paid.

The key question: when has the company actually "earned" the revenue through performance?

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Give an example where cash collection and earning revenue happen at different times.

Here's the core concept: revenue gets recognized when you fulfill a "performance obligation" to the customer. Think of it as completing your side of the deal. For example, Airbnb doesn't earn revenue when you book a place—they earn it when you actually stay in the accommodation.

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In revenue terms, what's the difference between signing a contract and satisfying it?

Performance obligations can be fulfilled at a point in time or over time. Selling a laptop? Point in time when ownership transfers. Providing year-long software support? Over time as service gets delivered.

This distinction drives when revenue appears on financial statements.

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For a gym membership, is revenue recognized over time or at a point—and why?

The amount of revenue recognized depends on the transaction price - but it's not always straightforward. If you sell three services bundled together, you must allocate the total price across each performance obligation.

This ensures each service shows appropriate revenue when completed.

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