Under accrual accounting, when is revenue recognized?

In accrual accounting, revenue recognition occurs when the product is delivered or the service is rendered, which aligns with the core principle of matching revenues with the expenses incurred to generate them. This means that even if cash has not yet been received, revenue is acknowledged at the moment the transaction has been completed or the service has been provided.

This approach provides a more accurate picture of a company’s financial health during a given period, as it reflects economic events when they occur rather than when cash changes hands. For instance, if a company sells a product on credit, the revenue is recorded at the time of sale, not when the payment is eventually collected. This ensures that financial statements reflect the actual operations of the business more clearly and help stakeholders analyze the company’s performance based on earnings, rather than cash flow alone.