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

According to GAAP, when is revenue recognized on an income statement?

At the end of the fiscal year, regardless of earning or collection

When it is earned and realizable, regardless of when cash is received

When the related expenses are paid

Only when cash is received from customers

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Verified step by step guidance

Understand the core principle of revenue recognition under GAAP (Generally Accepted Accounting Principles). Revenue is recognized when it is earned and realizable, not necessarily when cash is received.

Break down the key terms: 'earned' means the company has completed the performance obligations (e.g., delivered goods or services), and 'realizable' means there is reasonable assurance that payment will be received.

Eliminate incorrect options: Revenue is not recognized at the end of the fiscal year unless it meets the criteria of being earned and realizable. Similarly, revenue recognition is not tied to the payment of related expenses or the receipt of cash.

Focus on the accrual basis of accounting, which GAAP follows. This basis ensures that revenue is recorded in the period it is earned, aligning with the matching principle to provide an accurate financial picture.

Conclude that the correct answer is: 'When it is earned and realizable, regardless of when cash is received,' as this aligns with GAAP's revenue recognition criteria.