Revenue Recognition is the basis of accrual accounting. Matching principle is a crucial consideration as well. The principle takes into consideration revenues that are realized and when they are actually earned. So, there is always a question of accrued revenue or deferred revenue. Obviously, accrued revenue occurs before any cash is actually received, and deferred revenue occurs after cash has been received. The FASB, and IASB, separate entities, have different wording and different approaches to clarify these two revenue recognition elements. Click here to read or watch more IRS Help resources.
It doesn’t take rocket science to tell that there is a competing element between the two organizations. To make matters worse, both organizations released their proposals at different times. Both proposals were an attempt to get a better handle on how businesses report and practice their accounting procedures. Getting a handle on revenue recognition is important because there is great emphasis on meeting financial targets, from bonus considerations to selling or holding one’s stake in a business entity.
Obviously, the confusion between the two organizations makes it difficult for businesses to field an organized response to how they’re managing their financial reporting. It’s chaos as usual, and businesses are caught in between. Companies without competent tax and financial representation are in dire straits.