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Financial statements
Revenue recognition
Recording revenue when the performance obligation is satisfied — when the customer gets the good or service — not when the cash arrives or the contract is signed. Cash received first is deferred revenue; work done first is unbilled revenue.
Owned by: Senior analystTest band: Senior analyst
In practice
An annual subscription paid up front is twelve months of revenue and a liability that unwinds monthly. Booking it all in month one overstates the quarter and understates the next three.
The kind of thing the test asks
- A $120k annual contract is signed and paid in full on 1 December. December revenue from it is…
More in financial statements
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