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Chapter 17. Revenue Recognition and Inco... > Understanding the Impact of Revenue ...

Understanding the Impact of Revenue Recognition Methods

No matter which method of revenue recognition you use, the eventual, total amount of recorded revenue should be the same. What differs is the time at which the revenue is recognized. The timing of revenue recognition carries significant implications for different aspects of your business. For example, if your firm's primary activity is sales, then the timing of revenue recognition can become critical both to you and to your employees.

Suppose that you compensate your employees by means of commissions, and that commissions are paid when revenue is recognized. If, as is very likely, you recognize revenue on a point of sale basis, then your employees have an advantage. This is because you must pay them their commissions no matter when you actually receive the cash payment from the customer.


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