Revenue is recognized in the period in which it is earned.
Example 1:
ABC Utilities provides electricity to homes in New York City. Customer's pay ABC Utilities at the beginning of each month. ABC Utilities recognizes revenue during the period in which it provides its services, not when it gets paid. For the month of January it provides services of the amount of $100 to a consumer. ABC will recognize revenue during the month of January.
Example 2:
Adequate Disclosure Inc. performs routine bookkeeping services on an annual basis for its top client, Inadequate Disclosure, Inc., usually towards year end in December. This year Inadequate Disclosure, Inc. decides to pay in advance on November 1st, 2012, for bookkeeping services of $2,000,000 that will be performed by Adequate Disclosure on December 15th.
Record the journal entry on November 1st on Adequate Disclosure Inc.’s books:
Record the Journal Entry on December 15th, when Adequate Disclosure Inc. performs the bookkeeping services.
