Question:
Service revenue is recognized either at one point in time or over extended periods. Explain the rationale
for recognizing revenue using these two approaches.
Answer:
For service revenue, if there is one final service that is critical to the earnings process, revenues and costs
are deferred and recognized after this service has been performed. On the other hand, in many instances,
service revenue activities occur over extended periods and recognizing revenue at any single date within
that period would be inappropriate. Instead, it’s more meaningful to recognize revenue over time in
proportion to the performance of the activity.
Service revenue is recognized either at one point in time or over extended periods. Explain the rationale
for recognizing revenue using these two approaches.
Answer:
For service revenue, if there is one final service that is critical to the earnings process, revenues and costs
are deferred and recognized after this service has been performed. On the other hand, in many instances,
service revenue activities occur over extended periods and recognizing revenue at any single date within
that period would be inappropriate. Instead, it’s more meaningful to recognize revenue over time in
proportion to the performance of the activity.
