Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

Financial Accounting

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

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Multiple Choice

Under the revenue recognition principle, what should a company do if the subject matter of a contract becomes illegal before revenue is recognized?

The company should recognize only the expenses related to the contract.

The company should not recognize any revenue from the contract.

The company should recognize revenue as if the contract were still valid.

The company should defer revenue recognition until the law changes.

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Verified step by step guidance

Understand the revenue recognition principle: This principle states that revenue should only be recognized when it is earned and realizable, meaning the company has delivered goods or services and payment is reasonably assured.

Analyze the situation: If the subject matter of a contract becomes illegal before revenue is recognized, the company cannot fulfill its obligations under the contract, and the contract is no longer valid.

Determine the impact on revenue recognition: Since the contract is invalid due to the illegality of its subject matter, the company cannot recognize any revenue associated with the contract.

Consider the accounting treatment for expenses: The company may need to assess and record any expenses incurred related to the contract, but these expenses should not be tied to revenue recognition.

Conclude the appropriate action: The company should not recognize any revenue from the contract and should ensure compliance with legal and accounting standards to address the situation appropriately.