Rule of thumb for revenue recognition

The Rule of Thumb for revenue recognition refers to the guideline that businesses should record revenue when it is earned, not necessarily when cash is received. This means recognizing income once goods or services have been delivered or performed, regardless of when the customer pays. This approach provides a clearer picture of a company's financial health over time, reflecting actual performance and commitments. For example, if a business completes a project in December but gets paid in January, it should still record that revenue in December. This method helps stakeholders understand when a company truly earns its revenue.