Revenue recognition

In this lesson

1. 0:00 Revenue recognition fundamentals
2. 0:13 Control and timing of revenue recognition
3. 0:37 Revenue recognition over time explained
4. 1:11 Measuring progress on performance obligations
5. 1:41 Input versus output methods
6. 2:21 Recognition when progress unreliable
7. 2:36 Long-term construction contract example
8. 3:42 Point in time revenue recognition
9. 4:00 Indicators of control transfer

About this lesson

You'll discover the two key timing scenarios—revenue recognised over time versus at a point in time—and understand how to measure progress using output and input methods. Through practical examples like long-term construction contracts and goods sales, you'll gain the confidence to apply revenue recognition principles to real exam scenarios and confidently answer case study questions. The core principle is straightforward: revenue is recognised when control of an asset passes to the customer. Control means the ability to direct use and obtain substantially all remaining benefits. Over-time recognition applies when the customer simultaneously receives and consumes benefits (like a cleaning service), when your performance creates or enhances an asset the customer controls, or when you have an enforceable right to payment for work completed. For point-in-time recognition, control typically transfers when the customer has the right to payment, legal title, physical possession, and has accepted the asset—think purchasing goods in a shop. Measuring progress on over-time contracts requires judgement. Output methods measure the value transferred directly—surveys of work performed, units produced, or contract milestones—and are generally preferred when available. Input methods are indirect, tracking your efforts through resources consumed, labour hours, or costs incurred relative to total estimated costs. If you can't measure progress reliably, recognise revenue only up to recoverable costs. The lesson walks through a worked example of a customised office build to show how these principles apply in practice, ensuring you can handle similar scenarios in your exams with clarity and accuracy.

Duration: 5m