What is Optical Character Recognition (OCR)?

Q: What is Optical Character Recognition (OCR)?

Optical Character Recognition (OCR) is a technology that converts scanned or printed text into machine-readable digital data for automated financial processing.

Definition

Optical Character Recognition (OCR) is a technology that converts printed, scanned, or handwritten text from images and PDF documents into machine-readable and editable digital data. In finance, OCR is widely used to extract information from invoices, contracts, receipts, and financial statements to enable automation and accurate data processing.

How OCR Works in Finance

OCR software scans document images, identifies characters and patterns, and transforms them into structured data fields. Advanced systems combine OCR with Named Entity Recognition (NER) to detect specific data points such as invoice numbers, tax IDs, contract dates, and monetary values.

When integrated with a Revenue Recognition System or Revenue Recognition Software, OCR helps capture contract terms and billing details necessary for compliance with the Revenue Recognition Standard (ASC 606 / IFRS 15). This automation supports adherence to the Revenue Recognition Principle by ensuring accurate timing and allocation of revenue.

Applications in Revenue and Accounting

Automating contract data extraction for Revenue Recognition Automation.
Supporting Multi-Entity Revenue Recognition across subsidiaries and business units.
Enabling Multi-Currency Revenue Recognition by identifying currency terms and exchange rate references.
Validating documentation required to meet Revenue Recognition Criteria.
Enhancing financial forecasting through improved Revenue Recognition Modeling.

Benefits of OCR in Financial Processes

By digitizing and structuring financial documents, OCR reduces manual data entry, minimizes errors, and accelerates processing times. It strengthens compliance with a company's Revenue Recognition Policy and broader regulatory obligations under the Revenue Recognition Standard. Additionally, OCR improves audit trails, transparency, and operational efficiency across finance functions.

Summary

Optical Character Recognition (OCR) converts scanned or printed documents into machine-readable data, enabling automation and accuracy in financial workflows. When integrated with revenue recognition and accounting systems, OCR supports compliance, efficiency, and improved financial reporting.