ACCA Financial Reporting (F7) Practice Exam 2025 – Complete Prep Guide

Revenue is recognized over time when the benefits are received and consumed as the entity performs, which aligns with the criteria set out in accounting standards such as IFRS 15. This principle is crucial in situations where the performance obligations of a contract are satisfied over time, rather than at a single point in time.

For instance, think of construction contracts or long-term service agreements. In such cases, the customer simultaneously receives and consumes the benefits of the work as it progresses. Therefore, revenue is recognized based on the progress towards completion, which might be measured by output methods (like milestones achieved) or input methods (like costs incurred).

This approach ensures that the financial statements reflect a more accurate representation of the company's performance and the economic reality of the transactions. Recognizing revenue in this manner provides a clearer picture of the relationship between performance and revenue generation, thus offering more meaningful information to users of financial statements.