Recognizing Revenues and Expenses:  Realized and Earned

Robert S. Kaplan

Background Note | HBS Case Collection | November 1999

Recognizing Revenues and Expenses: Realized and Earned

Abstract

Describes a key concept in financial accounting: choosing an appropriate revenue recognition point. The accrual process requires revenue recognition and expense matching for reporting on the value creation process of companies. Describes the two key criteria for revenue recognition--realized and earned--and the conditions that must be met to satisfy these criteria. The use of the typical recognition point, when the product or service is delivered to the customer, is discussed as well as situations (e.g., the percentage of competition method) when revenue can be recognized before actual delivery. A rewritten version of an earlier note.

Keywords: Accounting Audits; Accrual Accounting; Cost Accounting; Budgets and Budgeting; Revenue; Profit; Cost Management; Value Creation; Competitive Strategy; Financial Statements; Accounting Industry;

Format: Print

5 pages

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Citation:

Kaplan, Robert S. "Recognizing Revenues and Expenses: Realized and Earned." Harvard Business School Background Note 100-050, November 1999.

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Recognizing Revenues and Expenses: Realized and Earned

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