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Part: IV Sales and Marketing > Revenue Recognition and Income Determination

Chapter 17. Revenue Recognition and Income Determination

This book has had much to say about the matching principle: timing the occurrence of costs so as to match them with the occurrence of revenues. Depreciation, for example, is one way of doing so, by recording a portion of an asset's cost during the period that it helps to generate revenue. The entire basis for calculating profit, and determining how and why you make it, is accrual accounting and its corollary, the matching principle.

The other side of the coin hasn't yet been discussed: timing the occurrence of revenues to match them with the occurrence of costs. Recognition and realization are two closely related concepts that help you match revenues to costs. To recognize revenue is to record it in your company's books. To realize revenue is to determine that it has in fact been earned.


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