Revenue recognition is the set of accounting rules, codified in the U.S. under ASC 606, governing exactly when and how much revenue a company can record for a sale, based on when it actually delivers value to the customer rather than when cash is collected.
For a simple one-time sale, recognition is straightforward: revenue is recorded when the product or service is delivered. It gets more complex for subscriptions, bundled products, or long-term contracts, where ASC 606 requires breaking the contract into distinct performance obligations and recognizing revenue as each one is actually satisfied.
Getting revenue recognition wrong is one of the more common accounting mistakes at a growing company, especially one selling multi-year contracts or bundled packages, and it's exactly the kind of thing that gets restated during diligence if it wasn't handled correctly the first time. Worth setting up properly with an accountant early, rather than fixing it retroactively across multiple years of contracts.
Add your revenue and website for a full diligence brief, reviewed by a CPA who ran EY's West Coast R&D Tax Credit practice for 13 years.