Revenue Recognition Principle GAAP

Revenue Recognition is the principle included in GAAP (General Accepted Accounting Principles).

Revenue from the sale of goods should be recognized when all the conditions are fulfilled and if any one of them is failed, then it can not be considered as revenue for the company's businesses.

ü  The entrepreneur transfers the risks and rewards of ownership to the buyer.

ü  The entrepreneur can not retain the managerial power relating to ownership of goods and also, he / she should not have effective control over the goods sold to buyers.

ü  The amount or price of revenue can be measured reliably.

ü The economic benefits associated with the Business Transactions should flow to the entrepreneur or enterprise.

ü   The amount of cost can be measured reliably.

However, it is to be noted that the seller can retain the ownership of goods due to the risk of failure of amount due from the buyers for paying the price of the goods sold to them.