The basic principles that determine the timing of recording (recognizing) revenue, expense, gain, and loss in the statement of income (P&L) and consequently those determining the timing of recognizing assets and liabilities of an entity. Technically speaking, it is the process of including an item in the financial statements subject to a set of criteria: (1) it is probable that the item will be associated with future economic benefits that will flow to or from the entity and (2) the item has a cost or value that can be reliably measured. Otherwise, no recognition takes place. Failure to recognize an eligible item cannot be made up by disclosure of the accounting policies and / or by addition of explanatory notes to the financial statements.

The process of recognition involves representing a given item in clearly descriptive terms and in monetary amount. The monetary amount will impact the totals of respective financial statements.