Question

When should revenue be recognized under gaap?

Answer 1

Generally Accepted Accounting Principles are composed of a broad conceptual framework so that rules and methodology canbe applied to any business or industry. While these broad rules help create flexibility in the accounting system, they also can be nebulous. The recognition of revenues and expenses are a good example.
SFAC 5 gives additional guidance for recognizing revenues. GAAP requires that revenues be realized or realizable and earned. Realizable means that you have collected assets or can lay claim on assets in exchange for goods or services. For revenue to be earned, a product or service must have been completed. Revenue is not always earned at the time of sale. Long-term construction contracts, like those for large aircraft manufacturing, will require special recognition methods. Recognition of revenue and expenses for these long-term contracts will be based on the percentage the contract has been completed or when the contract has been fulfilled.

Answer 2

They both determine the accounting period, in which revenues and expenses are recognized. According to the principle, revenues are recognized when they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash is received.

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