# Revenue Recognition Under IFRS 15: When a Sale Becomes Revenue *Why collecting the cash is not enough to record revenue, and how to apply the five-step model to your contracts and sales.* > **In short:** When is revenue recognized? IFRS 15 ties recognition to satisfying a performance obligation through a five-step model, with worked Saudi examples. - **URL:** https://www.snad.io/en/blog/i3tiraf-bil-iradat-ifrs-15 - **Arabic original:** https://www.snad.io/blog/i3tiraf-bil-iradat-ifrs-15 - **Category:** Guides — Core Accounting - **Tags:** revenue recognition, IFRS 15, accounting standards, deferred revenue, accounting, contracts - **Published:** 2026-06-10 - **Updated:** 2026-08-02 - **Publisher:** Snad (snad.io) Revenue recognition is the decision about the right moment to record a sale as revenue in the financial statements. The rule in IFRS 15 is that revenue is recognized when a performance obligation is satisfied, meaning when the goods are transferred or the service is delivered, not when the contract is signed or the cash is collected. The standard sets out a five-step model for applying that rule. This guide walks through the model, deferred revenue, worked examples for subscriptions and projects, and the common mistakes in revenue timing. ## What revenue recognition means Revenue recognition is **the decision about the right moment to record a sale as revenue in your financial statements**. The core rule in IFRS 15: revenue is recognized when a **performance obligation is satisfied**, meaning when the goods are transferred or the service is delivered to the customer, not when the contract is signed or the cash is collected. The aim is for your statements to reflect what you actually delivered during the period. You neither inflate revenue you have not yet earned nor defer revenue you have already earned. ## Why collecting the cash is not enough Collecting cash is a cash event, and not necessarily the moment revenue is earned. Two examples show the difference: - **You collected an annual subscription upfront**: you have not delivered the service yet, so the amount is an obligation you owe (deferred revenue), not revenue. - **You delivered goods without collecting payment**: you have genuinely earned the revenue even though no cash has arrived. Revenue recognition follows performance, not cash, exactly as in accrual accounting. ## The five-step model in IFRS 15 The standard sets out five sequential steps for recognizing revenue: - **Identify the contract** with the customer, along with its rights and obligations. - **Identify the performance obligations**: the distinct promises in the contract (goods, installation, maintenance, and so on). - **Determine the transaction price**: the consideration expected, net of discounts. - **Allocate the price** across the performance obligations by their relative standalone values. - **Recognize revenue** as each performance obligation is satisfied, either at a single point or over time. ## Deferred revenue and advance payments When you collect money before delivering the service, the amount is recorded in a **deferred revenue** account under liabilities, not under revenue. As the service is delivered over time, the earned portion moves from deferred revenue into actual revenue. This protects your statements from overstated profit, and it shows your real obligation to the customers who have paid in advance. ## Example: an annual subscription A software company collects SAR 12,000 for an annual subscription in January: - On collection: 12,000 is recorded as **deferred revenue** (a liability). - At the end of each month: SAR 1,000 is recognized as earned revenue (12,000 ÷ 12). Each month then shows its true revenue of SAR 1,000, rather than 12,000 all at once in January. That is the essence of "recognition over time". ## Example: a construction project A contractor signs a contract worth SAR 1,000,000 for a project running over a year. By the end of the first quarter, 30% of the work is complete: - Revenue recognized = 30% × 1,000,000 = **SAR 300,000** for the quarter. Progress is measured on a reliable basis, such as the ratio of costs incurred to total estimated costs. This "recognition over time by percentage of completion" matches revenue to the work actually delivered in each period. ## Common mistakes in revenue timing The errors that distort statements most often: - **Recording advance payments as immediate revenue** instead of deferred revenue. - **Recognizing the full contract value on signing**, before any service has been delivered. - **Failing to separate performance obligations**: merging a hardware sale and an annual maintenance contract into one immediate revenue figure. - **Ignoring expected discounts and returns** when estimating the transaction price. These mistakes inflate one period's revenue at the expense of another and make performance comparisons unreliable. ## How Snad handles revenue recognition Snad separates cash received from revenue earned: when an advance payment or a subscription comes in, it is posted as **deferred revenue** and recognized gradually by period or by percentage of completion. Your statements then show the real revenue for each period, and your obligation to customers stays visible under liabilities, in line with the logic of IFRS 15 and without complicated manual calculations. ## Frequently asked questions ### When is revenue recognized in accounting? Revenue is recognized when the performance obligation is satisfied, meaning when the goods are transferred or the service is delivered to the customer, not when the contract is signed or the cash is collected, per IFRS 15. ### What are the five steps in IFRS 15? Identify the contract, then identify the performance obligations, then determine the transaction price, then allocate that price across the obligations, and finally recognize revenue as each performance obligation is satisfied. ### What is deferred revenue? Deferred revenue is an amount you collected from a customer before delivering the service. It is recorded as an obligation under liabilities and moves gradually into actual revenue as the service is delivered. ### How do I recognize revenue on a project that runs for months? You recognize revenue over time by percentage of completion. If 30% of the project is complete, you recognize 30% of the contract value as revenue for that period, using a reliable measure of progress. ### Is collecting the cash enough to record revenue? No. Collecting cash is a cash event and not necessarily the moment revenue is earned. An advance payment stays an obligation until you deliver the service it pays for. ### Why do performance obligations in a contract have to be separated? Because each obligation (goods, installation, maintenance) has its revenue recognized when that obligation is satisfied. Merging them into one immediate revenue figure inflates the period's revenue and breaks the price allocation the standard requires. --- ## About the publisher **Snad (سند)** — a private Saudi software company based in Riyadh, founded 2025. Legal form: Sole proprietorship. Commercial registration: 7038154642 VAT number: 310959226500003 Only official domain: snad.io > Snad is a private commercial business-management platform. It is not a > government body, not a bank, and not a government services portal, and it > is not affiliated with any government entity. Any site or app with a > similar name is unrelated to Snad.