Why revenue recognition is a significant issue Businesses exist in order to make profits that arise from the sale of products or services. It then becomes necessary to determine when a sales transaction should be recognized in the books of accounts of the business. In accounting, the revenue recognition principle states that revenue should only be recognized when the service is offered, or when the goods have been dispatched to customers and not necessarily when cash is received (Hermanson & Edwards, 2005). For purposes of accounting, revenue is only recognized in the books when the following incidents have occurred:  1. The sale is of a quantity of goods that is known for certain, and the selling price is also known; so that the transaction value is known.  2. When the sales transaction has been concluded, or it is known with a reasonable degree of certainty that it shall be concluded.  3. When a critical incident in the sales transaction with the buyer has occurred, e.g. when a customer makes a promise to pay, and the transaction is legally enforceable. Difference between a product and period expense Expenses are the costs incurred in the business in the course of its operations. Product expenses are the direct costs of production, including the costs of raw materials, direct labor and variable overhead costs. Period expenses, on the other hand, are those expenses that cannot be directly attributed to the product or service produced. They are related mainly to the general administration or selling and distribution of the products created and are offset against the profit of the business during the accounting period when they were incurred. Matching concept of accounting This is also called the accrual concept. It states that the revenues and expenses of an organization must be recognized as they are earned or incurred and not necessarily when cash exchanges hands. It further states that the incomes for a period should be matched with the expenses for the same period and charged to the profit and loss account for the period to which the incomes were earned or when the expenses were incurred so far as the relationships between the incomes and expenses can be established or can be assumed in a justifiable way. Matching concept is also applied when accounting for the inventory of the organization. Only the sold inventory should be accounted for in the income statement, both in terms of revenue and costs of sale. The cost of sales is accounted for as follows in accordance with the matching concept: Cost of sales = Opening stock + Purchases – Purchase returns – closing stock. Time period Time period refers to the time lag between the dates of financial reporting of a company. Apple Company is a consumer electronics corporation based in Cupertino, in the United States. A link to the company’s financial statements is http://investor.apple.com/financials.cfm . The time period for Apple Company is 12 months; with quarterly reports being produced every three months. The fiscal year for Apple Company ends on 30 th September of every year. Samsung Electronics Company Limited is a South Korean company with its headquarters in Suwon, South Korea. The link to the financial statements of the company is http://www.samsung.com/us/aboutsamsung/investor_relations/financial_information/financia