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

The revenue recognition principle requires that revenue be recorded:

when it is earned, regardless of when cash is received

only when cash is received from customers

when expenses related to the revenue are paid

at the end of the accounting period, regardless of earning or cash receipt

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Verified step by step guidance

Understand the revenue recognition principle: This principle states that revenue should be recognized when it is earned, not necessarily when cash is received. This ensures that financial statements accurately reflect the company's performance during a specific period.

Analyze the options provided: Review each option carefully to determine which aligns with the revenue recognition principle. The principle emphasizes earning revenue rather than the timing of cash receipt or expense payment.

Eliminate incorrect options: For example, 'only when cash is received from customers' is incorrect because revenue can be earned before cash is received, such as in credit sales. Similarly, 'when expenses related to the revenue are paid' is incorrect because expense payment timing does not dictate revenue recognition.

Focus on the correct condition: Revenue is recognized when it is earned, meaning the company has delivered goods or services to the customer and has a right to payment, regardless of whether cash has been received.

Conclude with the correct answer: The correct answer is 'when it is earned, regardless of when cash is received,' as this aligns with the revenue recognition principle and ensures accurate financial reporting.