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What does "revenue recognition" mean?

In the middle of our most recent sales negotiation, the vendor told me that they couldn't complete the transaction in the way we desired because of what he called "revenue recognition" issues. What was he talking about?

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Long a bone of contention between buyers and sellers, "revenue recognition" issues concern the accountants' determination of what constitutes a "sale" for the company that can be "booked" (or accounted for AS a completed transaction). These rules are complex, convoluted, open for interpretation and have the tendency to not even be universally applied by even two departments within the same organization. When a seller says that they can't recognize the revenue, a common response is, "How you book your revenue is not really my concern;" also known as a "not my problem" defense. If the seller wants to complete the transaction (and they usually do), they can find a way to recognize the revenue. Try also to not give up maintenance and support add-ons that are used as leverage to complete a transaction.

This was first published in January 2005

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