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Chapter 17. Revenue Recognition and Inco... > Revenue Recognition in Theory

Revenue Recognition in Theory

Many—perhaps even most—companies use accrual as the basis of their accounting systems. Again, accrual means that when a company transacts business involving the receipt of revenue for a service or a product, they record the transaction when the transaction occurs. This can be, and often is, at a different time than when the revenue is actually in hand in the form of, say, a check.

The use of accrual accounting can make it more difficult to manage information about revenues and costs, because normally there are differences between the date of the transaction and the date that payment is received. It's important, then, to have standard procedures and rules in place that maintain the accuracy of the reporting, even if it is more difficult to do so.


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