What is Revenue Recognition?
Revenue recognition determines when a company records revenue in its income statement — the rules for 'when is a sale actually a sale' under accounting standards.
Formula
Under Ind AS 115 / IFRS 15: Revenue is recognized when performance obligations are satisfied and control transfers to the customer.
How to Interpret
Aggressive revenue recognition inflates short-term profits. Watch for channel stuffing, bill-and-hold arrangements, or long-term contracts with front-loaded revenue as red flags.
Typical Ranges
Compare revenue growth with cash flow from operations. If revenue grows but operating cash flow doesn't, recognition policy may be aggressive.