Alternative Revenue Recognition Methods in Accounting
Period of the Sale
is used because realization has taken place and revenues have been earned at the time of the sale. Accrual accounting is used, expenses are matched against revenues, inventory is recorded at cost, and accounts receivable are recorded at net realizable value. This method is used most often.
Prior to the Period of the Sale
is used to reflect economic substance over legal form. The percentage completion method of accounting for long-term construction contracts and the proportional performance method of accounting for long-term service contracts are examples.
At the Completion of Production
is used for certain precious metals and farm products which may have a fixed market price and unit interchangeability. However, this alternative is rarely used.
After the Period of the Sale
is used when the collect-ability of receivables is not reasonably assured or cannot be reliably estimated. The installment method and the cost recovery method are both used to defer revenue recognition.
Delayed Until a Future Event Occurs
is used when there has been insignificant transfer of the risks and benefits of ownership. The deposit method of accounting is used until revenue recognition occurs when sufficient risks and benefits have been transferred
to the buyer.