Revenue Recognition
The accounting rules determining when and how much revenue a company may record from a contract with a customer.
How it is identified
Test: recognise revenue when control of the goods or services transfers to the customer, in the amount expected to be received
Unit
qualitative
In depth
Under Ind AS 115 the standard is a five-step model built around transfer of control, which replaced older rules based on transfer of risks and rewards. The timing question is the whole game for long-duration contracts: a construction or software firm recognising revenue over time will show a very different profile from one recognising it at delivery. Because recognition is judgement-based, it is the most common site of accounting aggression, usually visible as revenue growing much faster than cash collection. Channel stuffing — pushing goods to distributors near a period end — is the classic manoeuvre and shows up as a jump in receivables.
Worked example
A three-year contract worth ₹300 crore recognised evenly gives ₹100 crore a year. Recognised on the percentage-of-completion basis with 60% of costs incurred in year one, it gives ₹180 crore in year one — the same contract, a very different first-year profit.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Revenue Recognition” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.