According to Generally Accepted Accounting Principles (GAAP) revenue is recognized if it is matched to the time it was earned. If for example a health care entity uses accrual method of financial accounting, it means all the services provided to patients whose medical care is funded by health insurance plans like Medicaid and other providers will be recorded as they occur though the payment may be paid in the following month or in a delayed date.
For instance, a client may be treated on a month like this, February, but the payment will be made on March. In this situation, revenue will be counted as earned on February and not as March when it is reimbursed.
This principle takes into consideration amount and time revenue is earned. There are three situations that can occur;
This principle takes into consideration amount and time revenue is earned. There are three situations that can occur;
1. A client can pay for goods or services in advance. In such a situation, the revenue will not be recognized when the payment is made but the day the goods or services will be delivered or provided. For example, if one pays for a car before its assembled, the revenue will be deferred up to the time it will be delivered to the client.
2. When goods or services are bought on cash and are delivered on the same day. That revenue will be recognized as have happened on that day.
3. Where goods or services are provided but paid on a later date. In such a situation, the time its delivered or provided will be recognized as the transaction day.
