Revenue Recognition Principle

• Revenue must be recognized in the account period in which it was earned. For goods, this happens when the good is sold. For services, this happens when the company performs the service. Credit charges are counted as revenue when the transaction occurs, even though the physical payment hasn't been received.
  
  

Matching Principle

• Revenue is tied to expenses because any money that a business takes in was tied to money spent. For example, revenue from a plate of food sold in a restaurant is tied to expenses from paying the salaries of the chef and waiter, buying the raw food, buying the cooking equipment and restaurant furniture, and renting or buying the building in which the restaurant resides.
  
  

Unearned Revenue

• Unearned revenue is cash made for products yet to be delivered or services rendered at some point in the future. Even though a company physically holds the revenue, it isn't recognized as revenue until the good is sold or the service is rendered.
  
  

Improper Revenue Recognition

• Companies are often tempted to record revenue the moment the transaction occurs, but in some cases this is an improper time to record revenue. The revenue from goods that have been bought by customers but not received by customers cannot be recognized until the customers receive the goods. This happens often when goods are bought and awaiting shipment. Financial institutions sometimes record the future interest or fees from a loan as revenue before it's earned. This is also inappropriate under the revenue recognition principle; interest and fees must be matched to the time in which it's earned.