In accounting, the revenue recognition principle states that revenues are earned and recognized when they are realized or realizable, no matter when cash is received.

It is a cornerstone of accrual accounting together with the matching principle. Together, they determine the accounting period in which revenues and expenses are recognized. In contrast, the cash accounting recognizes revenues when cash is received, no matter when goods or services are sold.

Cash can be received in an earlier or later period than when obligations are met, resulting in the following two types of accounts:

Under the revenue recognition principle, when a company received an advance payment, it is not recognized as revenue but as liabilities in the form of deferred income (which requires the company to perform certain obligations), until the following conditions are met:

For example: Revenues from selling inventory are recognized at the date of sale, often the date of delivery. Revenues from rendering services are recognized when services are completed and billed. Revenue from permission to use company's assets is recognized as time passes or as assets are used. Revenue from selling an asset other than inventory is recognized at the point of sale, when it takes place.

Accrued revenue is an asset that represents income earned by a deliverer when goods or services are delivered, even though payment has not yet been received. When payment is eventually received, the accrued revenue account is adjusted or removed, and the cash account is increased.

Deferred revenue is a liability that represents the future obligation of a deliverer to deliver goods and services, even though the deliverer has already been paid in advance. When the delivery occurs, the deferred revenue account is adjusted or removed, and the income is recognised as revenue.

The IFRS provides five criteria for identifying the critical event for recognizing revenue on the sale of goods: