revenue recognition model

The revenue recognition model is a set of guidelines that determines when a company should record income from sales. It ensures that revenue is only recognized when it’s earned and actually received or expected to be received, reflecting the true timing of business activity. This helps provide a clear, accurate picture of a company’s financial health. For example, if a company sells a product, it recognizes the revenue when the product is delivered and the customer’s payment is assured, rather than when the order is placed.