It feels intuitive that "revenue" should mean money coming in the door — but accounting rules are stricter than that, and the gap between cash received and revenue recognized is one of the most consequential things to understand about a company's financial statements. The current U.S. standard, ASC 606 ("Revenue from Contracts with Customers"), effective for public companies starting in 2018 and converged with the international IFRS 15 standard, lays out a 5-step model: identify the contract, identify the specific performance obligations within it, determine the transaction price, allocate that price across obligations, and recognize revenue only as each obligation is actually satisfied.
A concrete example makes this click: a software company selling a $1,200, 1-year subscription paid entirely upfront doesn't record all $1,200 as revenue on day one. It recognizes roughly $100 a month as revenue as it actually delivers the service over the year, holding the unearned portion on its balance sheet as "deferred revenue" — a liability, since the company still owes the customer the rest of the service.
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