How to recognize revenue over time vs at a point in time
- Graziano Stefanelli
- Sep 16
- 3 min read
Revenue recognition timing is a core issue in financial reporting. Under IFRS 15 and ASC 606, companies must assess whether control of goods or services transfers to the customer over time or at a point in time, depending on the substance of the contract. This distinction affects when revenue is recorded and directly influences the financial statements. Clear criteria and consistent application ensure transparency, especially in long-term contracts or services where the transfer of control occurs gradually.
The default approach is point-in-time recognition unless over-time criteria are met.
Revenue is recognized at a point in time unless the contract meets one of the following over-time recognition criteria:
The customer simultaneously receives and consumes the benefits of the service as it is performed
The entity’s performance creates or enhances an asset that the customer controls as it is created
The entity’s performance creates an asset with no alternative use and the entity has an enforceable right to payment for performance completed to date
If any one of these criteria is met, revenue must be recognized over time. Otherwise, it is recognized at a point in time, typically when legal title or physical possession transfers.
Over-time recognition is common in services, construction, and long-term contracts.
Examples of contracts typically recognized over time:
Professional services (legal, consulting, audit)
Long-term construction projects (roads, buildings)
Customized manufacturing with no resale market
SaaS and subscription services
These contracts often require the use of progress measurement, such as:
Input methods (e.g., cost incurred, labor hours)
Output methods (e.g., milestones, units delivered)
Example – Cost-to-cost method:
A company incurs $60,000 in costs out of an expected total of $100,000. It recognizes 60% of total revenue if performance is evenly spread.
Dr. Contract asset 60,000
Cr. Revenue 60,000
Point-in-time recognition is used when control transfers at delivery.
In contrast, point-in-time recognition applies to:
Sale of goods with standard delivery
Transfers where the customer gains legal title at shipment
Instances with no progress-based control transfer
Indicators of point-in-time recognition include:
Legal title passes
Physical possession transfers
Risks and rewards transfer
Customer acceptance occurs
Example – Retail sale:
A retail company sells and delivers merchandise on-site. Revenue is recognized when the customer accepts and pays.
Dr. Cash 100
Cr. Revenue 100
Judgment is required to determine the correct method and measurement.
Companies must assess:
The contract structure
Whether performance obligations are satisfied over time
The appropriate method to measure progress, if applicable
This judgment should be documented and consistently applied.
Disclosure enhances transparency of timing and method choices.
Under both IFRS and GAAP, companies must disclose:
Revenue recognized at a point in time vs over time
Methods used for over-time recognition (e.g., input/output)
Contracts with performance obligations yet to be fulfilled
Significant judgments in applying timing rules
These disclosures appear in revenue notes and allow users to assess business rhythm and cash flow patterns.
In complex cases, hybrid contracts may contain both timing methods.
Some contracts contain mixed performance obligations, such as:
A software license delivered upfront (point in time)
Ongoing updates and support (over time)
Each component must be analyzed and accounted for separately if it qualifies as a distinct performance obligation.
Recognizing revenue over time vs at a point in time reflects the true economic transfer of control to the customer. IFRS 15 and ASC 606 provide a common framework, but careful application and strong documentation are essential for faithful financial reporting, especially when contracts span multiple periods or involve non-standard deliverables.
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