From the course: Running a Profitable Business: Revenue Recognition
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Defining revenue recognition
From the course: Running a Profitable Business: Revenue Recognition
Defining revenue recognition
- When does a sale get reported in the books? Let's think about hypothetical Kamila Company, a company that makes and sells industrial equipment. And let's look at a sequence of seven events in order with respect to the sale of one piece of equipment by Kamila to a customer for $100,000. These events occur over the course of almost a year. So number 1, The Kamila salesperson thinks about the customer. Number 2, the salesperson negotiates with the customer and eventially receives a formal order. Number 3, the construction of the equipment is finished. Number 4, the equipment is loaded on a truck and shipped to the customer. Number 5, the equipment arrives at the customer's place of business. Number 6, the equipment is installed, tested, and formally accepted by the customer. And number 7, six months after delivery, the customer pays Kamila cash for the price of the equipment, $100,000. The accounting issue is simple. When should Kamila, the selling company, report this $100,000 sale in…
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