Step 3 of 10 in Knowing Revenues

​In terms of recognition history for Revenue, which we already know are inflows of enhancements of assets or settlements of liabilities, there was a thing that used to be called the realization principle. The realization principle used to tell us that revenue is set to be recognized when (1) earnings processes was “virtually completed” and (2) there existed reasonable certainty of the collectible of the asset.

​However, when discussing the realization principle, concerns always arose about how it was poorly tied to the conceptual framework (because this is GAAP, it is about the FASB framework), how it was treated differently within industries, and using this principle was difficult in dealing with complex arrangements. That is step 3.