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

Which of the following is true about revenue recognition under ASC 606?

Revenue is recognized at the completion of production, regardless of customer acceptance.

Revenue is recognized when control of the promised goods or services is transferred to the customer.

Revenue is recognized when the contract is signed, regardless of performance.

Revenue is recognized only when cash is received from the customer.

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Verified step by step guidance

Step 1: Understand the core principle of ASC 606, which is the revenue recognition standard issued by the Financial Accounting Standards Board (FASB). ASC 606 emphasizes recognizing revenue when control of goods or services is transferred to the customer, rather than based on cash receipt or production completion.

Step 2: Review the five-step model outlined in ASC 606 for revenue recognition: (1) Identify the contract with the customer, (2) Identify the performance obligations in the contract, (3) Determine the transaction price, (4) Allocate the transaction price to the performance obligations, and (5) Recognize revenue when (or as) the performance obligation is satisfied.

Step 3: Analyze the options provided in the question. For example, 'Revenue is recognized at the completion of production' is incorrect because ASC 606 requires revenue recognition based on the transfer of control, not production completion. Similarly, 'Revenue is recognized when the contract is signed' is incorrect because signing a contract does not necessarily mean performance obligations have been satisfied.

Step 4: Evaluate the statement 'Revenue is recognized only when cash is received from the customer.' This is also incorrect under ASC 606, as revenue recognition is not contingent on cash receipt but rather on the transfer of control of goods or services.

Step 5: Conclude that the correct statement is 'Revenue is recognized when control of the promised goods or services is transferred to the customer,' as this aligns with the core principle of ASC 606 and the five-step model for revenue recognition.