- Revenue is recognized when earned and payment is assured
- Expenses are recognized when incurred and the revenue associated with the expense is recognized.
They both determine the accounting period, in which revenues and expenses are recognized.
Revenue recognition is a principle as a cornerstone of accrual accounting together with matching principle (payee of rent).
Expense recognition is an essential element in accounting because it helps define how profitable a business (or entity) is in an accounting period.
Expenses are outflows of cash or other assets from a company or entity.
Expenses can either take the form of a decrease in a business’ cash or assets, or an increase in its liabilities.
The accounting method the business (or entity) uses determines when an expense is recognized.
Note: It is important to note that cash distributions to a business owner do not count as expenses.