Revenue Recognition

Office of the University Controller

Revenue Recognition

This portion of the book is focused on revenue recognition at Indiana University. IU utilizes accrual accounting, where revenues are recognized when realized and earned, not based on when cash is received. Proper revenue recognition is crucial because it provides a more accurate representation of IU’s financial position and performance over a specific period of time.

A student decorates a pumpkin with an IU trident during the First Thursdays Festival.

In order to properly recognize revenue under accrual accounting, users must ensure the performance, collectability, and measurability criterion have been met. For the performance criteria to be met, the saleable item must be transferred to the buyer, or the service must be completed. The sales or services are considered collectable if IU is reasonably assured that IU is going to be paid a set amount. This means that IU must feel confident that the money will be received after the service is performed or the item is sold. Revenue can be recognized if it is measurable. This means that both the cost of the service or product and the expense to provide the service/saleable item are agreed upon and can be easily measured.

By following accrual accounting principles, IU can match revenues with the expenses incurred to generate those revenues, providing a more comprehensive view of its financial activities. This helps in making informed decisions, budgeting effectively, and maintaining transparency in financial reporting.