Under the accrual basis of accounting, revenue is recognized when it’s earned. That’s the fundamental in short when it comes to accounting for revenue in a business that’s using accrual basis of accounting. A fundamental which has a little exception in the form that if you’ve got serious doubt you’ll receive money for the sale, you should account for it only when the money is received. But that’s an exception.

Generally speaking making a sale in June means you account for the sale in June and not July when your client pays their debt. As long as they’ve not paid, it’s a receivable balance on your balance sheet and revenue earned in June on your income statement. Now considering this exception we mentioned above you may ask why it’s so. Why take up receivable balances when you could just account for the sale when the money is received? I could ask you in return if you’re interested in giving away things. Because that’s what is going to happen if you’re not taking up a receivable – how will you know to whom you’ve given away your goods? Okay, you keep a separate record. Why not keep it as a receivable balance then? On a more meaningful note, wouldn’t you want to show your earnings as soon as possible rather than later? More importantly, wouldn’t you want to show the revenue in the same period you actually made the sale?

Matter of fact is that in accounting it’s required to show the revenue in the period it’s earned. One of the reasons is that you also gave away something for the sale to happen and this expense is already in the period you made the sale so to keep income and expense in the same period you must account for the sale just as well.