A friend of yours who is not an accounting major states, “I always thought that a company recognizes revenues at the time of sale. Recently, however, I heard that there are specific criteria for revenue recognition and that included in the criteria is something about realization (whatever that means). Furthermore, I also heard that revenue may be recognized before or after the sale. Please explain revenue recognition to me.”
Prepare a written response for your friend. Include an explanation of the revenue recognition criteria and realization. Also include a discussion of the reasons for, and alternative methods of, recognizing revenue in a period other than the period of sale.