Answer
In business, revenue is usually recognized when (1) earned and (2) realized or realizable. Revenue is the amount of money that will be received due to the operations of the present accounting period. However, this amount remains unknown until the money is received. Here the accountant requires objective evidence external to the organization itself on which an estimate of the amount of money to be received; here, at the earliest point, this evidence is the sale.
Work Step by Step
However, until the sale is executed, any estimates are considered a product of the managements' opinion. Ordinarily, we also have the transfer of title of ownership at sale, which also serves as additional evidence.
