Revenue should be recognized when it is earned and when it is realized or realizable. Revenue is considered earned when goods or services are delivered or completed, and it is realized or realizable when cash or a claim to cash (such as accounts receivable) is received or receivable. In this case, while the client has agreed to be billed for the merchandise on December 31st, ownership of the merchandise has not transferred to the customer because they do not have space in their warehouse to receive it immediately. Therefore, the revenue cannot be recognized in the current year, as the merchandise has not been delivered to the customer, and ownership has not transferred. Even though the client has agreed to be billed, revenue recognition should align with the actual delivery of goods or completion of services, which has not occurred in this scenario.

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