It is important to know when companies should recognize revenue, in other words, when the companies earned the revenue. Revenue recognition principle will guide us. But first of all we will start with the definition of revenue and expense terms. Revenue is the gross inflow of economic benefits during the period arising from the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. Expense is outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.