Under what conditions does a company recognize revenue over a period of time?

Revenue recognition is a widely accepted standard of GAAP that helps to define and record the transactions under which revenue is recognized. When a significant event occurs, revenue is often recorded, and the monetary amount is immediately measurable to the organization.

Companies can meet their performance requirements in a single instance or over some time. If one of the following three requirements is satisfied, revenue is recognized over some time:

1. As the vendor performs, the client obtains and consumes the advantages.

2. The asset is developed or upgraded under the ownership of the client (for example, a builder creates a building on a customer's property).

3. The company has no other use for the asset created or enhanced (for example, an aircraft manufacturer builds speciality jets to a customer's specifications). Either (a) the customer receives benefits as the company performs, and thus the task does not need to be re-performed, or (b) the company has a right to payment, and this task does not need to be re-performed.