Revenue recognition at an introductory level
Objective: Identify the point at which revenue is recognized.
Recommended first: Accrual basis vs cash basis
At an introductory level, revenue is recognized when the business has done what it promised — performed the service or delivered the goods. Contracts, invoices, and payments are evidence, not the trigger.
- Contract signed → no revenue yet.
- Service performed → revenue.
- Customer prepays → liability until performed.
- Gift cards → liability until redeemed.
Introductory revenue recognition focuses on one question: has the business done what it promised? For services, that is usually when the work is performed; for goods, when they are delivered. Contracts, invoices, and payments are evidence that help answer the question but are not the answer themselves. More complex arrangements follow detailed standards beyond this course.
Check your work
- What did the business promise?
- Has that promise been fulfilled?
- If cash arrived first, is the amount held as a liability?
A $50 gift card sold for cash is a liability until used.
| Account | Debit | Credit |
|---|---|---|
| Cash | $50.00 | |
| Unearned Revenue | $50.00 |
Common mistakes
✗ Recognizing revenue when the contract is signed.
✓ Wait until performance.
Guided practice
Use hints freely here.
Item 1 of 1
When is revenue recognized?
Under accrual accounting, a landscaper signs a contract on May 2, mows the lawn on May 10, sends the invoice on May 12, and is paid on June 5. When is the revenue recognized?
Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 4
Sell a gift card
On Mar 15, 2026, Corner Bean Café sells a $200.00 gift card for cash. The holder can redeem it for coffee later.
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Key terms
- Revenue recognition
- When revenue is recorded.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.